Benefits Of Financial Spread Betting
Financial spread betting can take a great amount of the risk out of trading and good money can be made. This is a cost effective and tax free (in the UK) way of alternative share trading. It is a method which is used online where the trader is able to speculate without the assistance of a stockbroker.
The beauty of being able to speculate on the movement of shares and stocks without the assistance of a stockbroker is that you don’t have to pay their commissions. Basically you make a spread around live market prices and place a bet on whether the prices will drop or rise.
The word “spread” describes the sell (bid) of buy (offer) price. The price is calculated by the company offering the spread bet. Essentially they take an existing share price for example the FTSE. If the price of this stock is 4729 for example they will quote a price of 4727 - 4731. The speculator has to decide if the price will go up or down and places their bet accordingly.
To open a new position you have to make a small deposit and if you were in the UK for instance, this could be as little as 10 - 40. Pounds This would be for a 1 pound bet and when the trader has decided which financial market they want to place their spread bet on they place a stake. The stake represents profit or loss and is based on a per point movement in that particular financial market.
Maximum stakes are different according to each financial market, but the wager is on whether the market price increases or falls. Once the wager is placed, if the bet was on a market increase, the spread better makes a profit. If the market falls, they make a loss. This loss can be substantial if the market drops substantially as the amount of ticks or points the market moves downwards is multiplied by the bet which was placed. By the same token if the market moves in the direction forecast by the trader, the points’ movements are multiplied by the amount of the wager. So you can see why profits can be made.
Because of this fact, the financial spread better has to understand that the market is often able to move quite substantially in the opposite direction to the wager made. This can mean a substantial loss, but by the same token, if the market moves in the direction predicted, a substantial profit can be made.
Because spread betting is considered to be a “bet” in the UK, and profits from this system of wagering do not have to be declared to the Tax Man. They are neither subject to Income or Capital gains tax.
Any spread betting company should provide a new trader with a demo account. This is because they need to learn what goes on in the market, before they risk any money. A demo account mirrors what a live account does and is generally offered with a beginners guide.
This means a new trader is exposed to the system first with no financial risk. Once they are confident that they understand the system fully, and have come to grips with the concept. They can begin live trading. Any online company you sign up with for a spread betting account must offer you this demo account, if they do not have one available, look for another spread betting company.
