subject: The Financial Markets and Where Next for the FTSE 100? [print this page] The Financial Markets and Where Next for the FTSE 100?
The market rally since July 2010 has seen stocks gain nearly 20%, but along the way we have seen our fair share of wobbles. The root cause for each wobble has been a European issue, however despite the fact that the threat of a sovereign debt default is looming large within the Eurozone, the declines in stocks values have been relatively short lived.
According to a recent Capital Spreads report: "Since September the FTSE has slowly ground higher day-by-day. We are yet to see any significant sell off, so, unless something changes, it looks like the bulls are happy to buy into the dips."
Of course, circumstances may change sooner rather than later. Further quantitative easing by the UK, as well as by the US, is likely to boost the markets in the short term. If anything though, whilst the forex exchange markets don't like the look of Sterling, the UK's more recent economic data has made it clear that the economy does not require that much easing. At least not yet.
If you're looking to trade the FTSE 100, or perhaps the foreign exchange markets, spread betting can be beneficial on a number of fronts. It offers easy access to the international financial markets as well as certain tax based advantages.
Perhaps more importantly, whether you think the FTSE will go up or down, with spread betting you can go either go long or short of the markets. This means you can speculate on markets to either rise or fall.
It is important to realise, however, that any investment provides the opportunity for you to make a loss. Share trading, like buying a house or exchange traded funds, can lead to losses. With spread betting, these losses can be larger than your initial stake.
On the plus side though, spread betting is tax free*. You are not actually buying and selling any assets; you are simply speculating on the future price of a financial market.
Spread betting companies also let you trade a wide range of international markets, so investors are not just limited to traditional stocks and shares. You can trade stock market index values, foreign exchange pairs, commodity prices and interest rates.
You can close a trade if it is losing you money, and, similarly, you can close a winning trade whenever you want so that you can bank your profit. However you don't necessarily have to close your entire trade: you can part-close it, if you chose. This essentially means that you can close a portion of your trade, keeping a part of it open. This is an important risk management feature that can help lock in profits as well as restrict losses.
There are many benefits to spread betting, however investors should be aware of the negative aspects. Spread betting does carry a high level of risk. Ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks involved. If necessary, seek independent advice.
*According to current UK and Irish tax law. Tax laws can change.
