Main Features of Spread Betting

Why is spread betting different from other "normal" forms of trading? After all isn't that what any trade or investment decision is - speculating on the future price of a financial instrument? Well spread betting has a number of both common characteristics and distinct features to the usual forms of trading. The key characteristics of spread betting are as follows.

Spread betting is tax free
In the UK, where spread betting is predominantly based, all profits generated through spread bet trading are tax free for UK residents. At the time of writing it is also the case with some other countries like Sweden. This means there are no capital or income taxes payable. This can be a double-edged sword as any realised trading losses are not tax deductible. The tax position of trading gains made via spread betting for traders who are not UK residents is likely to be different, so non-UK spread betting traders should contact the tax authorities in their own respective country to clarify how spread betting gains are dealt with for tax purposes.

Spread betting is a margined product
Spread betting is a margined product meaning that a position can be taken with only a fraction of its full value required as the initial deposit. The result of which is that very large profits can be made from a relatively small initial stake. In order to place a trade, an initial deposit called "initial margin requirement" (IMR) needs to be paid. This margin payment is can be as small as 1/10th or even 1/100th of the full value of what is being purchased. Margin trading therefore allows a trader to take a much larger position than would otherwise be taken with the amount of the initial stake, which can result in much greater profits than would otherwise be achievable. Conversely, it could also mean much greater losses than would otherwise be incurred.

Spread betting is (almost) fee free
With spread betting there are no broker commissions or stamp duty (UK) to pay. Although there are no direct fees payable, spread betting companies, or firms, make their profits from the spread offered, which in most cases nowadays is similar to the spread size on the underlying financial product being traded. However, it is worth pointing out that if a spread bet trade is held overnight there is usually a small overnight financing charge payable.

Spread betting is possible on a vast range of financial products
The majority of spread bet trades are taken on equities (stocks), but because the range of financial products that can be traded via spread trading has greatly increased in the last few years the percentage of equity (or stock) spread bets have decreased relative to other spread trades placed. Other popular spread bet trading products now include Forex (both Spot Forex and Forex Futures); global stock indices, eg, DAX 30 index, FTSE100 index, NASDAQ index, the Dow Jones; individual financial stock sectors, eg, Banks, Telecoms, Pharmaceuticals; individual global stocks, eg, individual companies on the S&P500 or FTSE 250; futures and options; commodities and even interest rate futures. It is also possible to spread bet on the value of house prices!

Spread betting with familiar order types
For most investors the types of spread bet orders will be very familiar. Apart from the usual instant execution order, where the trade is executed immediately, other types of orders include OCO (One Cancels the Other) orders, Stop orders (guaranteed and not-guaranteed, and Limit orders.

Spread betting long and short
With spread bet trading it is possible to go "short", or sell an underlying financial instrument as it is to go "long" or buy an underlying instrument (assuming that a regulator does not prevent short trading as actually happened during the recent financial crisis).

Trade on International Financial Markets with No Currency Exchange Risk
When you place a spread bet trade on a financial instrument for example on stock listed on a foreign stock exchange, you will place a bet, or trade, using the base currency of your chosen trading account (£, $, or €) held with your spread betting company. The whole of the trade will be handled or processed in your chosen currency thereby removing any potential currency risk.

Judge challenges Silverstein's $2.8B WTC airlines suit

Developer Larry Silverstein may not be able to collect $2.8 billion in damages he was seeking from airlines and security companies he claims are partially responsible for the Sept. 11, 2001, terrorist destruction of the World Trade Center, according to the most recent ruling in the eight-year saga.

A judge for the U.S. Southern District ruled last week that $4.1 billion in insurance claims Mr. Silverstein's firm, World Trade Center Properties, has collected from various insurers may offset any damages he was seeking from the airlines.

The court earlier this year limited Mr. Silverstein's claim against the airlines and security companies to a maximum of $2.8 billion—a much smaller amount than the $12.8 billion he sought in the original suit, filed in 2004.

Mr. Silverstein sued the airlines and security companies for failing to prevent the attacks and was seeking damages for his losses after the Twin Towers fell.

The aviation defendants argued that the insurance recovery World Trade Center Properties had already received—the $4.1 billion—should be used to offset Mr. Silverstein’s claims against the airlines and security firms.

Mr. Silverstein argued that the two claims are not related and should go to a jury trial. A WTCP spokesman noted this week that the firm is still allowed to sue for further “consequential” damages.

Each side declared victory in the latest ruling.

WTCP can pursue its quest for damages. Indeed, a representative for Mr. Silverstein said this week WTPC plans to continue with the lawsuit.

As for the airlines, the judge noted in his ruling that he considered the $4.1 billion that WTCP collected covered both the costs of replacing the buildings and the business lost in the interim, “unless WTCP pleads and proves specific facts” that the money applied to other things. The court also ruled that Mr. Silverstein was not entitled to recover the costs of replacing tenants, nor could he recover lawyers' fees from the airlines.

The airlines have spent years fighting to lower the potential monetary damages from Mr. Silverstein’s suit. Last year, their legal team even suggested the suit was seeking more money than the total amount of insurance the airlines and security firms had available.

Correction: Larry Silverstein’s World Trade Center Properties may still proceed with its lawsuit seeking $2.8 billion in damages against the airlines and security firms involved in 9/11 attacks. That fact was misstated in an earlier version of this article published Oct. 7, 2009.