How does spread betting work? Spread betting is indeed a leveraged product and carries a high level of risk to your hard earned capital. Which is another way of saying, you may lose more than your initial deposit.. A spread bet thus might not be too suitable for all investors, thus ensure that you fully get a grasp and understand the risk involved and seek independent advice if its necessary. This side, how do these kind of bets operate, compared to direct investing in stocks or shares? Let's take an example of buying or spread betting in relation to 1000 shares of a certain company. If the market price is 4.25p, or £4250, a rise in price will share of .25p will create a total increase in the value of the shares to £4500 pounds, or profit of £250 pounds not counting capital gains tax. Approaching the same situation through spread betting, however, has certain advantages, including avoiding a stamp duty in the UK, or the capital gains tax. This means one can make the same 250 pounds without the expenses. Most importantly, one need not commit £4250 to achieve the £250 profit, because of the leveraged nature of the spread bet. There is a price to buy the bet if you're expecting the share is going up, and a price to buy the bet if you think the value is going to fall. The spread between those two prices is what is taken out by the broker as the profit. Meaning, all one need do is (in the example above) to buy on £425 pounds on the expectation that the value is going to increase with the company's shares. The better and the broker decide on the nature of the points the stock is expected to move up or down on (it could be one point per pence, or other value). Much of the time, the minimum point for movement of the stock or share has already been defined by the broker. Let's say that your share bet is 10 pounds per point that the share will go up, and by later in that day the £425 you bet on in this fashion increases to £450. At this point you close your position at that value, and in spread betting terms you have a 25 points profit. Should you were betting 10 pounds per point, your broker will convert the points profit accordingly, and convert that to 250 pounds. So, for making a commitment or exposure only 10% of that of the traditional investing example, you make the same amount of money, without the taxes or duties. In addition, you may usually only have to put half of the money up front in a spread betting scenario, in this case only 212 pounds or so, in order to realize the profit above. Some share some more volatile than others, which complicates using this leveraged pathway to making money. But this is more than offset by the limited exposure of capital needed to realize the larger or equivalent profit compared to normal share dealing. If you're prepared to fund potential losses (with a guaranteed stop in place, because the leverage in the negative direction is just as powerful), this can be an overall incredible way to maximize profits dealing with shares.