GUIDE TO SPREAD BETTING
Introduction In a world of continually expanding wealth and technological advances, investing your money or assets has become an easy pastime, especially when there are no time differences to hold you back. As the investment world increasingly moves towards online trading, the option of spread betting is becoming more popular.
What is Spread Betting? Spread betting allows you to speculate on whether the price of an asset will rise or fall. You can gamble on equities, commodities and even house prices. The practice allows you to bet on whether the underlying asset will rise or fall during trading and does not require you to actually purchase the asset in question. The process of spread betting is a lot like betting on horse racing or football matches, only with a lot more risk involved. Betting on equities and getting it right is notoriously difficult as so many factors within a day’s trading can influence the direction a certain index will go. Although there are massive risks involved, with spread betting investors could potentially make money with minimal cost as they do not have to physically purchase the asset at a set price. The bet you make on the market is your call, allowing you to subject yourself to as much risk as you think your money can take.
How does Spread Betting work? Spread betting works by allowing investors to gamble on whether markets will increase or decline. For example, if the FTSE 100 stands at 5700 and you bet £10 a point on the index closing above that number, if the index rises to 5705, you will gain £50. Conversely, if you bet on the Index losing points and it actually gains, or vice versa, you will lose £10 for every point in the other direction. Short selling, or betting that the markets will decline, is not achievable for ordinary private investors. However, if they were to use spread betting as an alternative, short selling becomes a reality and you are able to bet against the decline of a market. Although the FTSE 100 is used as an example, spread bets can be used to bet against indices and markets in other countries. You can bet on bonds, commodities and even foreign exchange but will potentially need different accounts to bet on all three. As spread betting is a risky business, as no one can predict prices in a volatile market, you’ll need some protection in terms of settling up with your funds from your service provider, and so that you don’t gamble away all of your money. Find out more on how to deal with potential risks in the Potential Risks of Spread Betting and How to Buffer Them section of this guide.
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Advantages of Spread Betting Although, by now, the risks of spread betting will be fairly evident, there are potentially great advantages to the practice, including:
• The profits you make on your bets are free of tax including stamp duty and capital gains tax.
• There is no exchange rate risk on currency commissions which is particularly a good
advantage if the currency you bet in is strong. In buying shares, even if the price moves up, you could still lose money as currencies fluctuate.
• There are potentially great returns on minimal investments.
• Like other online trading and platforms, with spread betting you can trade outside of the
normal market hours.
• You can place bets that apply immediately.
• Spread betting providers are all regulated just as any other part of the financial services
industry.
The Potential Risks in Spread Betting and how to buffer them While spread betting can provide you with great returns, it is important to remember that there are huge amounts of potential risks involved as you are technically guessing the outcome of investor confidence. There are various risks involved, notably losing all of your money, savings and investments. Below are some potential risks and tips on how you can potentially buffer yourself against them.
• It is easy to lose huge amounts of money by spread betting, so it is important to limit your
bets to the amount you can afford to lose. You may also need to limit your spenditure from day to day.
• Every time you place a bet you need to find a level at which you admit you were completely
wrong and cut your losses, if you don’t you could lose more.
• Research the markets that you are about to bet on to see how much you could potentially
lose. However, as the markets are still volatile, it gets harder to predict.
• If you are winning, remember that your luck could run out. Don’t get over confident and
stick to the level you have set yourself.
Spread Betting Providers Spread betting is a service that is predominately available through an online application or platform, all of which are heavily regulated by the FSA in the UK or the financial authorities where you live. All spread betting providers will allow you to open a demo account for you to play around with first, allowing you to gain the experience before betting with your own money. Some providers such as expattrading.com will not only provide you with the tools to get started, but will answer any queries you have when you start out spread betting. For further information on expattrading.com, please visit the website.
Is Spread Betting for me? Spread betting is right for investors who have a great deal of knowledge and understanding of equities and have solid self discipline. The practice is a very risky one, so you will need to determine your risk tolerance before you start to place bets.
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It is always important to remember not to place bets that you cannot afford to lose, so the risk you take is dependent on your experience and knowledge. If you are just starting out it is best to start with a small amount of money. If you think that you have the right amount of knowledge and risk tolerance, then spread betting is right for you. It is important that you speak to your financial adviser when deciding to embark on the practice of spread betting.
How do I start? If you have weighed up the risk and are interested in opening a spread betting account, please contact us on info@devere-group.com.
The advice we provide is free and without obligation.
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