Many people spread betting expect to be charged a commission fee or transaction fee just like one would when trading the market. Trading the market involves buying and selling shares on the stock exchange and brokerage firms are paid to handle these transactions. Brokerage firms typically take a commission on every trade as a fee for their service.
Spread betting doesn’t involve any commissions, but spread betting firms are paid a fee. This fee is built into the spread and is paid by traders who make losing bets. For example, two traders make opposite bets on the same trade. One of them will win and one will lose. The winner pays no out of pocket commissions, but the losing trader pays the loss which is calculated from the spread movement times the wager. The loss has the spread betting firm’s fee factored into it before the bet was even placed.
Spread betting firms know not all traders will win which is why their fees are built into the spreads. No transaction fees for placing bets in spread betting are assigned either. Therefore, the only costs associated with spread betting are the losses a trader may experience.