Financial Spread Betting
Ever fancied trying your hand at
financial spread betting
but haven't really known what it's about, or where to get started? In this
article we take a very basic look at financial spread betting and ask what it's
all about.
Financial spread betting is a commonly used retail derivative employ to
speculate which direction the share price of a stock/commodity/index will take
without actually owning or purchasing any of the shares. It is now one of the
United Kingdom's most popular methods of trading, and this is not surprising
given that any profits are 100% free from stamp duty and Capital Gains and
Income Tax. A spread bet is a contract between the client and spread betting
company where the bet is based on an underlying financial instrument. Actual
ownership of that financial instrument never takes place.
One of the principle reasons for using this tool is to profit from markets such
as stocks and shares, bonds, foreign exchange, and commodities such as crude oil
and gold, be they on the UK or international markets. Financial spread betting
is a great way for smaller investors to trade without committing to a large
financial investment.
Unlike bets in bookmakers, there are no fixed odds in spread betting, but
instead a stake is betted (pound s per point) on the direction of the market. If
the trader bets that the price will rise, this is called 'going long', and if
the better predicts the price will fall, this is called 'going short'. So rather
than direct ownership of equities in a company, the trader is betting on which
direction he thinks the price will go. Any profit or loss made is determined by
the difference in buy and sell (bid and offer) prices.
Another advantage of financial spread betting is that it is also possible to
make money if the price falls, unlike the more traditional methods of trading.
And making profits here is as simple as making profits in a rising market, it
simply depends on how far (how many points) the price has fallen against the
price the time the bet is executed.
There are principally two types of spread bets at present. The first is a bet
which closes once the markets close, and the second is a bet which will close at
the end of a quarterly cycle. Daily spread bets do have expire at the end of
each day but for a small 'interest' charge you can roll over these bets into the
next trading day or trading cycle.
Benefits of financial spread
betting include access to most markets 24 hours a day, all markets traded
through just one account, and the use of smaller bets. This is attractive for
traders who are looking to get in and out of a trade quickly. Another benefit is
that there is no commission or fees involved and all of the costs are included
in the bid-offer agreement. With financial spread betting your financial
products are all in the same place and under the currency of your choice, pound
sterling, US dollar, or euro. This saves you the inconvenience and costs
involved in exchanging currencies.
As with all trading and investment, there is an element of risk involved and if
the market moves in the opposite direction to your bet, you may lose your money.
Research your market and only bet what you can realistically afford. Stop-loss
facilities are offered by most financial spread betting companies to help you
monitor your funds. These facilities are set up to suit your individual
financial requirements but they may not be guaranteed and money can still be
lost.
Stuart Smith writes extensively on Financial Spread Betting subjects and
recommends
www.financialspreadbetting.co.uk as the site of choice.
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