subject: Spread Betting Is Like Gambling On Stocks [print this page] Financial spread betting can be a way of gambling on the stock market while not having to own stocks and shares independently; as such one of many key advantages that it has over trading is that it may be done any time of the day, whether the markets are open or otherwise not. Besides this, spread betting is tax free and typically enables you to leverage a great deal more money than you actually put down in the first instance. This works both through using margined trading and also through the spread itself - allow me to clarify.
Spread betting will involve betting on whether you believe a stock will increase or drop in value in a given period of time. If you think a share is under priced for example, you are able to 'buy' at a certain number of pounds per point (with shares, a point is equivalent to a penny). So, if you purchase at 20 per point and the share goes up by 2p then you just made 40. If it falls by 2p you then just lost 40. It's fairly easy, but the money can spiral out of control pretty easily.
Consequently, spread betting always entails a certain volume of margined trading. The margin within financial terms, is in part a deposit which you make as a way to cover your potential losses on the trade. This is to ensure that if you set a bet at 20 per point, then the stock falls by ten points, there exists a buffer to make certain that the company is repaid the money which you owe them. With financial spread betting you are usually only required to place 10% of the value of your trade down for a margin.
Generally there is going to also be a facility called a "stop loss" which stops the bet when you have lost a certain amount of currency and a 'stop win' which does exactly the same after you have made a certain amount of money.
Overall, financial spread betting is a very risky, short-term investment strategy, the main benefit of which being that it's tax free. The main drawback is that you can lose much more than you bet, and that you will need to thoroughly manage your position in the market to be able to ensure that you do not lose a lot of money. Although risky, one can do well if they study the numerous strategies and master their own techniques.
