Margin trading is the practice of buying or selling financial instruments on a leveraged basis.  Spread betting operates on this principle.

This enables clients to open positions by depositing less funds than would be required if trading with a traditional broker.

For example, if you were going to buy £100,000 worth of physical shares then the initial outlay would be £100,000 of your capital, up front. In comparison, had you taken the equivalent position with a spread bet, then you would only need to deposit £10,000 as margin, (assuming the margin level for the trade was 10%). Margin varies depending on the product you bet on. An important part of understanding how spread betting works is getting to grips with margin requirements.

Given the nature of this product, trading can result in profits or losses that are significantly greater than the initial deposit.

Find out more about margin trading [external site]