Differences Involving Financial Spread Betting and Futures Trading
Differences Involving Financial Spread Betting and Futures Trading
The stock market offers you a number of important trading options. That you can do normal day trading in shares or currency within the physical space or if you are more adventurous and wish to make optimum utilization of limited monetary resources, you can go for trading in derivative instruments such as financial spread betting or margined trading, futures trading or cfd trading. The derivative instruments fall within the arena of speculative activity and are therefore fraught with greater risk than cash market trading.
Let us compare financial spread betting with futures trading. Basically both are leveraged or geared financial instruments where you just pay margin money in order to trade in a higher quantity of shares. This margin money is typically between 15-20% from the actual value of the amount of shares you're trading in and for that reason represents an opportunity for you to make quick gains should the market movement maintain consonance with the position you have taken. Both don't attract any type of stamp duty and that explains the reason why they're very popular. You get to keep the profit you are making as a whole and that's a great advantage. However, when you make losses, those losses are for good because you cannot offset it against any profits in future.
Futures trading contracts have an expiry period and you have the liberty of holding your position till that date and allow it to run out or close anything prior to the date. Regardless, there's no physical exchange of shares. The futures contract price is also at a premium compared to the underlying and this is referred to as the funding charge.
Financial spread betting also has a expiration period and the price already has a premium that's integrated into the cost. You are able to close the position like you would do in futures or keep it till expiration and allow it to expire on its own.
Financial spread betting dealings are between the trader and also the market maker unlike futures in which the contracts are dealt with by the exchange. The regulation in margined trading is a lot lesser than in futures trading. Both derivative products do not involve any physical exchange of assets though their movements are based on the movement of the underlying.
In conclusion, it is better to complete financial spread betting and / or deal in futures trading solely after understanding their subtleties in greater detail.