Unlike traditional stocks, CFDs or Forex spread betting profits are usually tax-free. This is because the industry is considered gambling, unlike conventional trading.
If you live in a country where gambling winnings are tax-free, hopefully this is also the case with spread betting. However, it is highly recommended to check this with a tax specialist in your respective country.
Place a stop loss order
The good news is that you can install a stop loss order to ensure that you never liquidate in mt4. Instead, you can end your spread betting trade when the asset goes against you by a smaller amount. For example, instead of closing your trade at a liquidation rate of 10%, you could set your stop loss order at 2%.
Here's how a stop loss order works in practice when spread betting:
- Let's assume the current long price is $250.0, which is 250.0 points
- You are trading with a margin of 10%, which corresponds to a share of 1,000 GBP and a trade size of 10,000 GBP
- However, you would like to limit your losses to 2%
- To get our stop loss order price, we need to subtract 2% from the current long price of 250.0 points
- 2% of 250.0 points is 5.0 points, therefore our stop loss order would be placed at 245.0 points
A "worst case scenario" would be that Apple shares lose 2% of their value. If this were the case, you would lose £200 and the trade would be closed (2% of the trade size of £10,000). Although you still lost money, you might have lost your entire margin if the stop loss order was not in place - that's £1,000.
We hope that by reading our guide in full, you now have a 360-degree view of how spread betting works. We've covered everything from how to win and lose money in spread betting, what financial instruments you can trade, and what risk management tools you can install to minimize your potential losses.
Ultimately, while spread betting is not for everyone, it does offer a number of advantages over traditional investment channels. At the forefront are commission-free trades that are often tax-free - and spreads that remain unrivaled in other investment areas.
Above all, make sure you understand the underlying risks of spread betting before taking the plunge. After all, most newbie traders lose money the first time they start. So proceed with caution.