Spread betting is the most fast-paced investment form in history. There is virtually no other way for an investor to gain (or) lose so much so quickly. And though the form was invented in the United States, it remains illegal there, though it has been embraced in other nations like Great Britain. So what is spread betting, and why is so controversial in the United States?
Spread betting is a form of investment, based on insight or speculation about the behaviors of various markets. An investor makes a wager, based on the position on an underlying stock, market, or other entity at any given moment. The investor also makes a wager on whether the entity will grow in value or lose value in a given time period. At the end of the time, if the entity has grown or declined beyond a certain threshold, the investor wins a Pound-per-point figure, based on the distance above or below the point they selected. Losses are gauged similarly. Losses can add up to quite a bit, as can wins, unless the safety net of the stop loss is employed, in which the investor cuts their losses at a point set in advance.
Spread bets are cast millions of times a day in the United Kingdom. The industry is growing by nearly two figures every year and it brings in millions of pounds to the nation’s economy. So why does the US stay out of the game? Simply put, it’s because they can’t tax it.
Because spread betting happens so quickly, thousands of wins and losses can be calculated every second. Not only would it be difficult, in an infrastructure sense, to tax every one of those capital gains, to do so would also put the IRS in a very tricky position. By taxing this sort of gains, the US would also have to provide tax relief for their losses, which outnumber wins by about 5 times. This would generate negative tax revenue in great amounts, very quickly. So why is the practice allowed in the United Kingdom?
The UK takes a much more passive stance on spread betting and its role in their economy. Like the US, they are unable to tax the capital gains that flood out of the industry. But they accept spread betting for its passive benefit to their economy, passive in the sense that is difficult to regulate and impossible to tax. Spread betting brings in hundreds of millions of pounds every year, much of it from outside the country. Most of that money stays within the country’s borders, because spread betting sites and establishments are allowed to operate legally within the country.
For these reasons, spread betting seems a natural fit for the US, which allows much more controversial practices like sports gambling in several states. Due to recent uproar in New Jersey regarding another form of spread betting, it seems unlikely that the Federal Government will rule in favor of spread betting anytime soon, meaning that American spread betting investors will have to put their losses and fees into foreign economies. For nations like Britain, this is no problem at all.