Spread betting in the UK is fully regulated by the FSA which ensures that all brokers have to abide by the same codes as other financial services providers. The ethics of spread betting from the perspective of the broker are therefore monitored and the possibility to become involved in a scam spread betting brokerage are minimised. Regulation means that all brokers are directly responsible for their client’s deposits and many reflect this by holding client funds in a separate, account to that of the company. Looking for the FSA accreditation on any broker’s website provides reassurance that they are credible and respect the ethics of the financial services industry.
Betting or Analysing?
In terms of spread betting itself as an ethical activity, some people claim that because of the definition of such ‘bets’ they are somehow less ethical than other popular forms of speculation. The United States, for example, hold spread betting as an illegal activity through the misconception that it falls under the same category as online gambling. Clearly, the ethics of gambling as a game of chance, are far removed from the careful analysis of spread betters who use exactly the same methods of analysis to pinpoint opportunities as professional investors and currency traders. The term ‘bet’, however, creates a less than ethical image for those who do not understand the similarities between these forms of speculation.
No Tax, No Ethics?
Due to the huge success of spread betting in the UK as a tax-free means to speculate on price movements, some also argue that it may not be an ethical form of income. Whilst spread betting falls under the umbrella of gaming in the UK and therefore profits are seen in a similar way, it is true that vast profits are generated consistently by many which are ineligible to be taxed. However, this is more a case of governments failing to engage in the complex process of taxing this activity, rather than poor citizenship on the part of the trader. Ethically, spread betters are not required to pay tax on profits, or conversely claim against losses; therefore it cannot be described as an unethical activity in itself.
Shorting the Market
Another argument that spread betting may not be ethical focuses on the ability of traders to ‘short’ markets. Short-selling involves making profits from the falling price of an asset and is a highly popular activity across all markets. Occasionally, when economic crisis or financial insecurity reaches a certain level, stock markets will suspend short-selling for a period of time in order to prevent the complete collapse of a share price or currency. This will only generally be enforced on those markets which have a wider link to the public such as banking shares. However, it is worth remembering that spread betting markets are derived from the underlying market and therefore bets made have no impact on the actual value of that asset. It is impossible for spread betters to influence the value of a currency and stock directly and therefore they cannot be responsible for the collapse or losses incurred by companies or citizens using a particular currency.
Spread betting covers many markets and within these are some which some traders may consider unethical. Profiteering from, for example, placing bets on controversial defence or pharmaceutical shares may sit uncomfortably with some and this ethical concern is very much down to personal choice. Whilst shares are unaffected by bets made on a spread betting platform in terms of performance the ethical concerns of an individual can be easily adapted to choosing the right markets and avoiding those deemed as unethical. Similar to all other forms of speculation and investment, the vast choice of alternatives and ethical opportunities are vast and easy to find on all spread betting platforms.
Are you interested in spread betting? Tristan hopes to explain how spreads are ethical and why you could use them to make money.