Bid-Offer Spread

Bid-Offer spread is the difference between bid price (price at which one can sell shares) and offer price (price at which one can buy shares) and depends on the liquidity of the particular market. For example, spreads are much tighter for blue chip shares rather than AIM shares as there are much more participants involved.

The same rule applies for financial spread betting. Your broker will quote two prices and you can buy underlying derivatives at offer price and sell at bid price (and this spread will be the commission your broker charges for maintaining liquidity in the market). The spread is usually about 0.15% for blue chip shares but can be considerably higher depending on the liquidity of the underlying market.

When trading with a conventional stock broker one has to pay commission for every trade executed (to make a round trade, buy and sell shares, you have to pay commission twice), plus stamp duty, which is currently stays at 0.5%. Besides that, you will have to pay Capital Gains Tax on the profits made. Some of the stock brokers might also be charging administration and inactivity (if you don't trade for a particular period), making share trading prohibitively expensive for active traders.

On the other hand financial spread betting offers hassle-free and low-cost trading solution for active traders in the UK, it is no surprise that it has experienced rapid growth and still attracts scores of retail investors in the UK. With spread betting all the fees and trading costs are wrapped within the spread, making it the cheapest way to trade financial markets.