subject: The Long and Short of Financial Spread Betting [print this page] The Long and Short of Financial Spread Betting
All traders invested in bonds, stocks, forex, indices, futures, options and commodities must keenly regard financial spread betting as an advantageous alternative.The most promising advantage of spread betting is that there are zero brokerage fees charged on the deal. Bookmakers earn from their commissions based on the spread that is quoted.
An example of a deal is the best mode of understanding the idea behind financial spread betting, as it is similar in other markets.For instance, when there are potential signs that the present quote, 6230 of FTSE 100 index is way overly priced.Subsequently, a spread bet may be quoted against the FTSE 100 price which would fall back between the spread 6165 to 6175 by the 3rd week of the next month.
Based on this existing spread, you have two options, either you bet that it will fall below this price range and sell the index or you bet that it goes higher than this and buy the index. Either of these options, you are making a bet by staking a sum of money, say 12 per point. If you expect it to fall, you will logically sell the index.Suppose that within the time frame, the FTSE 100 drops 150 points under the spread index to 6015. Based on this result, your total spread or profit will be 12 times 150 or 1,800.The investment instrument gives you the flexibility to exact your earnings as soon as you close the betting position.
Nevertheless, be aware of the pitfalls in spread betting. The prospect of windfall profits is balanced by an equal prospect of potential losses. Let us assume that you have bought points under the same condition as discussed in the preceding paragraph.The losses to your account would be tremendous.The number of points the index fell added to the spread, ie. 150+10=160, is to be multiplied with 12, sums up to a substantial loss of 1920. You have to remember that when you make an erroneous call, you stand to lose big time. On the other hand, if you make the right call, the profit will likely be astronomical.
Due to the speculative nature of this market and the insecurities involved, spread betting companies and providers enforce hard and fast rules regarding credit.Credit is offered to potential bettors and the amount of credit is decided based on individual's loss absorption potential.Therefore all spread betting positions are automatically closed before accounts run into negative balance, and to keep your positions open you need to make cash deposits into your accounts with bookies.
So, what are the things that we should consider if we want to give this a shot? You have to remember that, just like with any other trading method, financial spread betting bears upon us the same risk.Search for the best spread betting firms and providers who offer demo accounts with unreal balance.The demo account is necessary for new bettors to practice on, and for professional bettors to test drive the efficiency of provider's platform without involving any real money.
