The Pros and Cons of Spread Betting

Spread betting offers an investor the opportunity to trade on market movements in

numerous sectors for example indices, commodities, interest rates, bonds, currencies and individual shares or stocks. When choosing a bookmaker it is vital that you check the selection of markets covered. Not all spread betting brokers will offer all markets.

In spread betting the trader is not in reality purchasing the product (share) directly, but rather is speculating on the movements within the underlying instrument. Essentially the trader is making a bet on whether they believe the price will rise or whether the price will fall and is betting a quantity on each point or 'penny' movement. The profits are computed by the movement difference multiplied by actual stake.

Two key features of spread betting are the ability to profit in falling markets through short selling and the chance to gain additional market exposure through leveraged trading. Being able to trade on margin implies that you only will need a modest percentage (NTR) of the capital to open up your position. This really is advantageous as you only have to deposit a fraction of the total market exposure which means that you can leave all of your capital in a bank account making interest. Leverage even allows you to raise your potential return on the trade as you can actually increase your exposure while only contributing a portion of the total value of the position.

However, it is also important to recognize that leverage normally entails more risks than a direct investment in the underlying instrument. This is because leverage has the possibility to work in opposition to as well as for you because using leverage magnifies both your trading profits as well as losses. Therefore it is good practice to use stop loss orders as deficits may quickly exceed your original capital if not properly treated.

Financial spread betting also offers the UK trader the means to profit without worrying about having to pay capital gains tax or a stamp duty. Within Great Britain financial spread betting is known as a form of gambling and therefore is not subject to the taxes aforementioned.

Starting your spread betting accounts can be achieved online by completing an online application, or via mail. The majority of providers offer both credit accounts or debit accounts. Such bookmakers are regulated and are required to follow strict guidelines. Spread trading accounts will be kept segregated from the company's funds so at the unlikely occasion of the financial distress of the company, the total funds are still safe. It is crucial that all traders use a level of leverage that is applicable for their past experiences and capital.

Finally spread betting is a strong product that enables one to make far better usage of your capital. They offer a flexible as well as low cost substitute for traditional share trading but due care constantly needs to be taken with margin traded products. It is advisable to learn all the terms as well as processes prior to starting to trade; make sure you know the way stop loss orders work as this might help save you from financial ruin.

Find the correct brokerage, investigate as it is also worth noting that not all spread betting providers are created the same; several will offer their clients incentives to begin to trade with them. Additionally it is essential to make sure that the company you are considering offers the markets which you intend to trade.

The Pros and Cons of Spread Betting

By: G Currey

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