Can Spread Betting Be a Viable Side Hustle for Financially Savvy Brits?

Lately, more British retail investors have chosen spread betting to make extra income during their free time. Still, is it possible to make decent money from cryptocurrencies while being financially aware? The guide looks closely at what spread betting can offer and what problems may arise if used as a side business.

What is Spread Betting?

With spread betting, investors can bet on the future changes in the price of shares, indices, currencies and commodities. The system lets users invest their money in whether the asset price will increase or decrease after the specified period.

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Your wins or losses as a trader are determined by how accurate your bets are and how many points your stake moves in the underlying asset’s price. Having an accurate idea of how much prices will move and trading a larger number of lots per point movement are both ways to increase your P&L. That’s why spread betting offers big rewards, but it can also result in big losses if the trade goes against you.

Spread betting differs from conventional investing as you don’t take ownership of the underlying asset itself. You are simply taking a view on the future direction of its price.

Is Spread Betting Suitable as a Side Hustle: Benefits

Some advantages make FX brokers for spread betting an appealing side hustle for the financially savvy:

Leverage allows you to magnify returns (but also losses) with a small deposit
Tax-free profits if spread betting is used judiciously and not as the main income stream
Ability to profit from rising or falling markets
Low barriers to entry with minimal startup capital required
Chance to earn attractive returns in your spare time

With financial markets open nearly 24 hours a day, spread betting offers flexibility to trade around other commitments in your time. The fact that spread betting uses leverage means you can obtain decent profits with a relatively small amount of money to begin with.

Is Spread Betting Suitable as a Side Hustle: Risks and Drawbacks

However, there are considerable risks and challenges to making spread betting a viable side business that need careful consideration:

Leverage magnifies losses as well as gains – novice traders can easily lose more than their initial deposit if not careful
Requires strong risk management and disciplined trading to succeed
Needs substantial time commitment to analyse markets and manage positions
Spread betting tax benefits don’t apply if used more like a main income stream
Significant competition from professional traders with more skill and resources

Since you are investing a relatively large amount, mistakes in the market can quickly result in big losses. With spread betting, you always need to be aware of what’s happening – it’s not something you can easily ignore. It might be hard for some people to balance their work, personal life and time spent at school.

But there’s another conflict: using spread betting judiciously to benefit from tax exemptions versus being more active and making spread betting a meaningful side income. And you’ll be competing against institutional investors who have far greater resources.

So, spread betting should not be viewed as easy money; it requires skill, diligence, and risk awareness to succeed.

Getting Started in Spread Betting

If you still want to try spread betting after considering the pros and cons, here are some tips when getting started:

Start small – trade with a tiny percentage of your capital until you gain experience (1 – 2%).
Demo accounts are always best to practise on before going live with real money. It means you can get familiar with the platforms and test strategies risk-free.
Build a structured trading plan which outlines your risk/reward parameters, the instruments you’ll be trading, your position sizing and the rules for getting out of a trade. And stick to it!
Set aside dedicated time each week for market analysis, identifying trading opportunities and monitoring open positions. Don’t overcommit your schedule.
Keep detailed records of your trades, including rationale, timing, entry/exit level, and P&L. Review these results periodically to improve.

Be prepared to lose money! Even the best traders have losing streaks. Manage risk accordingly and avoid the temptation to overtrade or revenge trade to recoup losses quickly. Patience and discipline are key.

Stay up to date on financial news flow, economic data releases and corporate earnings that can impact your positions. Use stop losses religiously.

The financial markets are extremely difficult to master. But with the right mentality and measured approach, certain traders may find spread betting complements their skills and circumstances as a profitable side hustle.

Spread Betting Strategies

If carefully researched and backtested, some spread betting strategies may improve your chances of generating consistent returns alongside your regular job:

Trend Following

This is a simple strategy — find assets with strong trending up or down and enter spread bets that way. The principle is that “the trend is your friend” until eventual exhaustion. This captures large directional market moves.

Range Trading

The idea is to buy near the bottom of a range when a clear floor is seen and sell near the top of a range when a clear ceiling is set. As price oscillates between levels, this allows range-bound profits to be captured. It requires accurate range identification.

News Trading

The market prices in the uncertainty and volatility usually surge just before major economic data releases or company earnings. Surges in positive or negative news can be sites of outsized profits in short bursts if well-judged spread bets anticipate the price reaction to such news.

Technical Analysis

Here, we are looking at strategies based on price charts and technical indicator analysis (moving averages) to find high-probability trading opportunities. Accuracy can be improved by combining different technical signals. Meant to be followed by mechanical rules, it requires discipline.

The above are by no means exhaustive but provide a flavour of the approaches to consider. Still, you’d have to do quite a bit more testing and refine your tactics to match your trading style.

Managing Risks

The prospect of big returns is enticing, but you must be prudent in your risk management to avoid blowing out your trading capital, which can happen swiftly. Some tips include:

Be sure to use stop losses when trading to control your losses if things don’t go your way. Ensure you follow the rules for leaving; no exceptions are allowed.
Opt for guaranteed stops, as it may cut into your profit, but it guarantees you won’t lose too much.
Do not put more than 1-2% of your total portfolio into one trade just in case. You leave yourself with money to continue trading tomorrow.
Set a limit for your losses each day or week and then stop trading once you’ve reached it. Never act on the urge to get back what you’ve lost.
Reliable features of spread betting platforms, such as take profit orders, allow you to acquire returns after hitting your profits.

Adopting a robust risk management discipline combined with measured position sizing is vital to long-term survival and profitability in spread betting. If you don’t, you run the risk of either destroying your trading accounts or having to stop trading as soon as you cross critical loss thresholds.

Dealing with Losses

Even utilizing sensible risk management, suffering trading losses is inevitable. Successful traders view losses as part of the game rather than catastrophes to be avoided. Some healthy perspectives include:

Focus on controlling the size of losses, not avoiding them altogether. This comes from prudent position sizing and stop placement.
Remember, you only need to be right 33-50% of the time to profit in spread betting, depending on your reward: risk ratios. You will still have plenty of losers.
Reflect on losing trades calmly to understand the reasons behind them – don’t just beat yourself up. Did you ignore warning signals? Disregard your trading plan rules? Or was it just bad luck?
Don’t fall into the trap of chasing losses to try and get back to breakeven quickly. Overleveraging precisely creates these reckless behaviours, leading to blow-up accounts. Rebuild steadily.

If you accept that losses are going to happen, regardless of how hard you try, you can instead spend your energy on bouncing back by doing a composed review and refinement of your process, rather than being dispirited.

Tax Considerations

One of the much-touted benefits of spread betting over conventional stock investing is tax exemptions on profits. However, there are subtle differences to consider. For tax purposes, there is an important distinction between:

Casual Trading Activity

Profits here are fully exempt from capital gains tax and do not need to be declared to HMRC. To qualify, the activity should not rely on spread betting profits as the main income source, and overall trading is not conducted in a “business-like” fashion.

Pro Trader Status

Anyone making most of their income from spread betting or managing it professionally is considered a “Professional Trader” by HMRC. Even though these accounts are tax-favoured, the money earned in them is taxed as income rather than as capital gains. All full accounts/records must be filed.

The latter category needs more tax admin but is still better than normal investment taxes. Casual trader thresholds do exist, though, because if they didn’t, HMRC would lose huge sums of money from people using spread betting for tax-free betting purposes.

So dabbling in spread betting gently at modest levels as a side hobby is fine, but actively trading it as an ambitious money-spinner risks unwanted tax attention. Get guidance on generating a sizeable income.

Regulatory Considerations

Historically, the spread betting industry has been under less stringent regulation than mainstream investing providers. However, standards are rapidly evolving in line with EU rules to better protect retail investors:

Proof of identity, where you live, how you earn income and experience in investing is now needed before you can open an account for spread betting.
Now, advertising is closely monitored to prevent false earnings statements and the trivialised mention of risks.
All brokers should clearly explain how financing, spreads and commissions reduce the potential gains from trading.

So, while the past image of spread betting was the Wild West, authorities have clamped down on previously lax standards to align with wider investing sector norms. This bodes well for sustainable long-term trading.

Busting Myths & Misconceptions

There are also some stubborn myths around spread betting worth busting:

Myth 1 – Only short-term trading is viable

Truth – Long-term strategies are equally feasible, provided risk is managed properly during drawdowns. Avoid short-termism.

Myth 2 – Spread betting is just glorified gambling

Truth – It’s possible to profit consistently, but there are risks, and prepared traders with skill and proven strategies can manage them. Know what makes prices rise.

Myth 3 – Losing traders are always wiped out.

Truth – Losing streaks should only cost small percentages of capital before regrouping, and stop losses and controlled position sizing should help make that happen.

Myth 4 – Huge deposits are needed to earn decent side income

Truth – Thanks to leverage, modest £2-5k accounts can be grown substantially if trading carefully and avoiding overexposure.

Before deciding on risks and odds, beginners should first confirm the truth behind common misconceptions about spread betting.

Conclusion

Like any extra income opportunity, there are chances and risks with spread betting. Because this strategy depends on debt, it can produce tax-free earnings and give you flexibility, but it can also result in extra losses and continuous attention to potential risks. To survive in times of market turbulence, casual traders should practise, plan every trade and ensure they don’t put too much money at risk. Traders who practice discipline and patience can achieve success, but spread betting won’t help you become rich overnight. Treat the topic with respect, do not expect too much and use good money management skills. Those willing to spend time learning can find spread betting useful, but being careful is very important.