Spread betting has become a go-to method for individuals looking to profit from financial markets, fast. It’s marketed as tax-free, flexible, and accessible. You can speculate on the price of stocks, commodities, or indices rising or falling without actually buying anything.
But beneath the surface lies a high-risk activity that many underestimate until it’s too late. This article explores the real risks of spread betting, the psychology behind why people are drawn to it, and why it’s not as simple or safe as it may seem.
What Is Spread Betting and How Does It Work?
In simple terms, spread betting lets you speculate on whether a financial market will go up or down. You place a bet (e.g., £5 per point) on the movement of an asset like the FTSE 100, gold, or Bitcoin. If the market moves in the direction you predicted, you profit; if not, you lose, potentially far more than you staked.
Unlike traditional investing, you don’t own the underlying asset. You’re betting on price movements only.
The Hidden Risks of Spread Betting
1. Leverage Can Destroy Your Capital
Leverage is one of the main attractions of spread betting and also its most dangerous feature. You can control a large market position with just a small deposit, known as margin. This magnifies both gains and losses.
If the market moves sharply against your position, you could lose more than your initial stake. Many new traders don’t realise how quickly leveraged losses can snowball.
2. No Ownership Means No Safety Net
With traditional stocks, if the price drops, you can often hold long-term and wait for a recovery. Spread betting doesn’t offer that option. Since you never own the asset, you can’t wait it out. If your prediction is wrong, the loss is immediate and final.
3. Emotions Take Over
Spread betting can trigger emotional trading. The fast pace, the pressure to act quickly, and the thrill of making (or losing) money rapidly can lead to reckless decisions. Many traders fall into a cycle of chasing losses, increasing risk after a losing trade, known as revenge trading.
This often turns what starts as a controlled strategy into compulsive gambling behaviour.
4. It’s Not as Cheap as It Looks
While you might hear that spread betting is commission-free, brokers make money through the spread, the difference between the buy and sell prices. These spreads can widen during volatile periods, making it harder to profit.
Additionally, if you hold positions overnight, you’ll likely pay financing charges or rollover fees, which can eat into profits over time.
5. Most People Lose Money
It’s a hard truth: the majority of retail investors lose money spread betting. Many brokers even disclose the percentage of clients who lose, as required by regulators. It’s not uncommon to see stats like 70–80% of retail accounts lose money.
Why? Because of a combination of poor risk management, emotional decision-making, and unrealistic expectations.
6. Limited Investor Protection
Spread betting is legal and regulated in countries like the UK, but protections are not as robust as with traditional investing. Since you’re not buying actual financial assets, you’re usually not covered by investment compensation schemes if your broker fails.
How Rising Yields Affect Your Portfolio
For investors, rising yields can present both a threat and an opportunity. Some of the biggest considerations include:
- Repricing risk: Existing bond holdings may lose value as newer issues offer higher returns.
- Income potential: On the flip side, reinvesting into higher-yielding bonds can boost overall income.
- Duration risk: Longer-term bonds are more sensitive to rate changes. Shorter maturities may offer more flexibility.
- Inflation hedging: Traditional bonds may underperform in real terms if inflation remains elevated.
In this environment, individual investors may find it difficult to decide how much bond exposure is appropriate—especially when balancing other assets like equities, property, and cash.
That’s where a tailored strategy from a professional wealth manager becomes invaluable. Find a Wealth Manager makes it easy to compare vetted advisers who can assess your needs and recommend bespoke bond allocations and portfolio diversification strategies.
Why Spread Betting Feels So Tempting
Despite the risks, thousands of people start spread betting every day. Why?
1. The Promise of Fast Profits
Who wouldn’t want to make £200 in 15 minutes from a single trade? The idea of quick, tax-free gains is incredibly tempting, especially in today’s social media world, where “trading gurus” flash screenshots of five-figure wins.
2. Easy to Get Started
You can open a spread betting account in minutes and start trading with a small deposit. Demo accounts make it feel safe at first, but when real money is on the line, it’s a different story.
3. It Feels Empowering
Spread betting offers a sense of control. You’re making active decisions, predicting the market, and using real-time data. It creates the illusion that you can beat the system if you just “learn the patterns.”
But the market doesn’t care about your predictions, and even the pros have losing streaks.
4. Designed to Keep You Hooked
Many platforms are intentionally designed to look and feel like apps or games, complete with notifications, stats, and achievement badges. These features trigger dopamine responses in the brain, similar to those caused by gambling apps.
The more you engage, the more likely you are to make impulsive trades.
Should You Try Spread Betting?
Spread betting is not inherently bad, but it’s not suitable for everyone. If you’re financially secure, understand risk management, and can approach it with a clear head and a tested strategy, it can be used responsibly.
However, if you’re looking for a quick fix, or if you’re emotionally driven by losses and wins, it could be financially and psychologically damaging.
Final Thoughts: Think Before You Bet
Before getting into spread betting, ask yourself:
- Do I have a clear, tested strategy, not just a “feeling”?
- Can I afford to lose this money?
- Am I trading for profit, or excitement?
If you’re serious about long-term wealth, there are safer and more proven paths, like diversified investing or building passive income streams. Spread betting, for most, is more likely to shrink your savings than grow them.
Proceed with caution, manage your risks, and always know why you’re trading, not just what you’re trading.
It’s definitely not for the faint-hearted, and if you prefer to get rich slowly rather than poor quickly, come to findawealthmanager.com for the expert help your money deserves.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
