Spread bets are a user-friendly, highly geared way to invest in financial markets for investors who have not necessarily got huge amounts of risk-capital at their disposal. Trading spread betting is a tax-efficient* method of trading, and allows you to profit from a falling market just as easily as a rising one.
Spread bets also permit a trader to go ‘short’ – sell an asset he does not actually own in the hope he can buy it back at a lower price at a later date. This means a punter who believes a market or underlying asset is going to fall in value can actually profit from their foresight. A further attraction of spread bets is that such contracts are exempt from stamp duty and from capital gains tax.
At a Glance Guide to Spread Betting
Spread bets have really come to prominence over the last decade and private investors are beginning to take advantage of the opportunities on offer.
When placing a spread bet, an investor is asked to define three basic things –
- The instrument/market and type of bet
- The direction they believe the market will move
- The stake, i.e. the amount they would like to make for every point that the market moves in that direction.
The FTSE 100 is quoted at a price of 6009-6010 (a 1 point spread). You believe the market will fall over the course of a day and decide to sell at £10 a point at the lower figure of 6009. As it turns out, the UK100 index market does fall to a level of 5995.
Your total winnings = 6009-5995 = 14 x £10 = £140
However, if the opposite occurred and the market moved to 6023
Your total losses = 6009-6023 = -14 x £10 = -£140
Of course there are a number of reasons for the increased popularity of spreadbets. Spread bets can work out cheaper than other ways of speculating in equities and allow experienced investors to deal in bigger sizes than conventional trading through ‘leverage’.
Leverage allows investors to multiply their investment; trading larger sizes for a smaller outlay than traditional share dealing where normally you have to pay for the entire trade.
However, used in the right way spread bets can be a great speculative tool. They have the potential to make money when going up, and unlike traditional share dealing, spreadbets can also make money when going down (assuming you have traded in the right direction).
The trick here is to manage your risk in case the spread trade goes against you and to get out at the right time so as not to give back your gains. A simple way to mitigate risk is to trade a set small percentage figure of your total account size around the 1% to 2% range. Once the position moves in your favour, the stop loss would be moved to the entry price. This means that if the market subsequently reverses you would break even.
Spreadbets are typically used for short term trading but like other investment types, the uses of spread bets vary depending on an investor’s individual circumstances and investment outlook.
Spreadbets allow investors to place a ‘short’ on an investment, which means they may make money if a share price or market goes down. This allows investors
to profit in a falling market. This is rarely possible with conventional share trading.
Interestingly, the increasing popularity of mobile spread betting platforms over the last couple of years has coincided with a period of notable market volatility. Fast-moving and challenging at the best of times, many markets have additionally been affected by a near-constant stream of dramatic newsflow and significant geo-political events. Against this backcloth, the facility mobile platforms provide to check newsfeeds, watch prices and enter and exit positions at any time is a huge boon for traders, who could be checking out the euro during a vote in the Greek parliament or re-assessing their position on the Dow Jones Industrials as weaker-than expected data emerge from the US.
Consider trading as a lucrative sideline to your mainstream investment activities. The vast majority of your funds should be in shares, real estate, bonds or whatever you have worked out with your financial planner. Only trade with money you have spare and can aff ord to lose. At the end of the day, it’s a risky pastime.
Trading spread betting is another name for financial spread betting free. Trading was first introduced with financial markets where people could trade virtual or real commodities or values of stocks and shares compared to the value of the market.
Financial Spread Betting was introduced in the 1940s and just recently became available online when Forex (foreign exchange) companies decided that the market is ready to trade more than just currencies.
Gambling was always popular worldwide. If there’s one thing that will keep its popularity, it’s sex and gambling. Since the financial markets are famous for the ability to make people rich, it was only natural for spread betting to be combined with the financial market to combine both financial and betting in one place.
Financial Spread Betting made it possible for trading spread betting online where you can trade virtual values without actually being invested in them. For example you can bet on Google’s Stock GOOG to drop (go short) without actually having to purchase stocks at their market value. All you need to do is place a bet based on your financial ability and if you’re right you will make money out of it.
The same goes for different type of commodities such as gold, oil gas, wheat and so on. If you know this market and you are aware of the trends you should try this.
The ability to make money from financial markets is extensive, especially in days of financial crisis or uncertainty. If you play by the book and go with the tips offered on this website, you can make good money betting on financial spreads.
Why does it called Trading when you are not actually trading anything?
The answer is simple, the trading concept was given to financial spread betting in order to make it more attractive for gamblers. If you just call it bet on stocks, it makes it sound cheap, but if you call it trading spread betting, the trading concept which is given to the experts in the financial markets make it attractive for the gambler to get involved in, especially if he is aware of the financial markets and want to try something new.
There’s no limit to your earnings with financial spread betting, however just like investing on financial markets, the stock or value can go down when you’re invested for it to go up (go long) so you might lose. Be careful and trade responsibly.