Online Financial Spread Betting
The revolution in being able to speculate on price fluctuations in almost any market, 24 hours per day and in any part of the world has been created by the availability of online spread betting. Whether your thing is for the UK main FTSE indices, those in Frankfurt or Paris, or perhaps further across the pond Wall Street in New York, there are plenty of trading opportunities to be found every day.
Online trading has changed the way markets interact and have arguably diluted the power of the original financial houses who had monopolised trading and short-term investments until around the mid-1990’s. Previously, trading on an intraday basis was either done over the phone or via a visit to a broker. Much of this was advisory unless you had direct access to a trading floor and it would almost always require large volumes of money if you wanted to become involved across currencies, equities, stocks and commodities.
The birth of the internet led to online trading which in turn has formed online spread betting. Whilst trading online allowed access to almost anyone with a computer and a reasonable sum of money to invest, in its early form it could not provide real-time charts and was seen as a vehicle through which people could invest rather than interactively trade shares and currencies. The arrival of CFD trading online moved a step closer by providing a derived market, where ownership was not realised, but it was still relatively expensive with the purchase of minimum web lots of currencies. Then came the rise in popularity of online spread betting which transformed access to online trading by reducing financial barriers to allow almost anyone instant and real-time access to global markets.
Online spread betting has grown exponentially over the past ten years. From an initial handful of pioneering firms, providing a novel incentive of tax free earnings to UK trader, online spread betting has grown in to a multi billion dollar industry. The competition and growth in popularity has been one of the main drivers for the success and attraction of traders using services which had previously been almost the exclusively reserved for sports betting. Financial spread betting firms have fought competitively to not only provide the tightest spreads and lowest deposit requirements to attract new account holders, but they have also invested heavily in technology to provide traders with some of the most powerful online trading platforms available. These platforms allow online spread betters to compete with professional traders; advanced charts, real-time data and streaming news feeds give access to the same tools as those who previously held the upper hand.
Opening an online spread betting account has also developed rapidly and many online platforms no longer require you to prove that you have a certain amount of money or earnings to support your application. Many will simply allow an account to be created and with a small deposit traders can begin to execute trades. Promotional offers form some of the largest and most established spread betting companies offer the ability to trade very low stakes for the first few weeks in order to minimise risk and allow new traders to get an understanding of the platform. Others offer money-back guarantees on the first few weeks losses, providing risk free trading which both new and experienced traders have readily taken advantage of.
All online spread betting brokers as a whole offer substantial education packages explaining online spread betting and tutorials for new traders. As a growing industry, spread betting firms have learnt that it is by providing maximum information and trying to help their clients become successful traders that they will continue spread betting online. Almost all brokers provide highly advanced charts, educational material, online support and webinars free to their account holders. Furthermore, in a bid to take advantage of the smart phone revolution many have moved their platforms to create sharp mobile trading platforms. These support most iphone and android interfaces, allowing traders to monitor positions, view charts and open positions from any location.
Online spread betting has clearly changed the way people trade but has also allowed access to trading to everyone. The sheer breadth of markets provided by each single broker would have been unheard of twenty years ago without visiting a specialist, and quite possibly expensive brokerage. Almost all online spread betting companies offer a large range of forex currency pairs, including major, minor and exotic pairs on a 24 hour trading basis. Within the same platform they provide quotes for US, European and global stocks which are tradable throughout the day during market hours. Online spread trading is also available for commodities including oil and gold, usually with both spot and futures quotes, and many firms currently offer specialist markets based on interest rates and house prices as well as binary options trading as the latest popular development.
Spread bettings allow an investor to go long or short on a wide range of financial instruments, while the ability to trade margin and use leverage means traders get ‘more bang for their buck’ than via physical positions or exchange-traded funds (ETFs), And today’s low interest rates make trading on margin more cost effective than ever.
Financial Spread Betting Example
Suppose you are bullish on Vodafone’s prospects over the next twelve months or so, perhaps believing that a rise of 20% is in order. The most straightforward way to exploit such a positive view would be to buy shares in the company. However, you could instead buy a Vodafone spread bet. With spread bets, you won’t have to pay stamp duty on your position. If you buy £20,000 of Vodafone shares via this instrument, you will be saving £100 compared to buying the actual stock. And whereas buying £20,000 of Vodafone shares would require you to tie up that amount in the position, a long-term trade would only require you to deposit a fraction of that.
If you use a spread bet, you won’t have to pay any tax on your profit if you are right. This is, of course, a major saving. Say Vodafone goes up as much as you expect, leaving a gross profit of around £4000 – you’d pay nothing on this position via a spread bet. Of course, the longer you run a derivative position, the more it costs you. Spreadbets incur financing charges, which amass over time. By contrast, there is no such cost when buying the actual shares, unless you are using borrowed money to do so.
Based on today’s ultra-low interest rates, our £20,000 Vodafone spread bet position could rack up £440 in financing charges over a twelve month period if you kept rolling the spreadbet day after day on an overnight basis. Remember, though, that you could easily run this position with, say, just £3000 in your trading account.
Had you bought the Vodafone shares, you would have had to stump up the entire £20,000. By opening a spreadbet, you could keep the £17,000 you then have to spare in a savings account earning interest. Assuming a savings rate of 3 per cent, you could earn £510 in interest before tax to help off set your spread betting financing charges.
Suppose you have a hunch about the stock price of a supermarket like Tesco. The stock price has fallen from 360p to 310p recently, but you reckon that it is likely to bounce soon. So, you log onto your stock broking account and buy Tesco shares. Your hunch turns out to be correct. Tesco’s stock price rises from 310p to 330p over the next few weeks and you decide to close your stock trade. In this instance you would have to incur commission to sell, just like what your stockbroker charged you when you acquired the shares. Also, after having paid stamp duty when you bought the shares, the tax man now insists that you now have to pay him a big chunk of your gain, whilst you also have to pay for the full value of the position when you opened the trade.
Well, it isn’t written that it has to be this way, though. Instead of buying stock, you could have bought a spread bet online. With a spread bet, you’re simply speculating on a stock’s price movement without owning the stock itself. This avoids the stock broker’s commissions, but more importantly this also means that trading this way means that there isn’t any stamp duty and absolutely no tax to pay on any profits. Trading this way also makes possible for you to substantially increase your returns by utilising leverage.
Online financial spread betting services are offered by various companies, most are companies who provided Forex services before and now expanded into the financial spread betting business.
Spread betting, have a look into it. But basically if you have a £1k and put it in a spread better (people betting the share price will go up and down (down is shorting). If it goes the wrong way you can lose more than a grand on the other hand if it goes up you’re certainly better off than just buying/ selling shares…
Online financial spread betting is regulated and licensed in the United Kingdom, this means that gamblers can rest assured the service is good and their money is safe (when betting with licensed providers only). On spreadbetting: if you are new to share trading please don’t consider spread betting until you are very familiar with the business. But be warned, when you start using real money your brain works more through fear than greed and most (I’s say around 80%) lose their entire wad and some. You have been warned.