The late Benjamin Franklin is remembered for once famously saying, "There are two things
you can be sure of in life - death and taxes!" When an opportunity to make money
and not pay any tax on the profit comes along, it's fair to say that most people would take
a second glance. Financial Spread Betting falls nicely into this category.
Financial spread betting is a leveraged tool that gives investors the opportunity to trade the financial markets without ever taking physical ownership of the underlying instrument. This means that the trader/investor can speculate in the direction of any financial instrument, whether it is specific shares, currencies, commodities or indices without ever owning them. In the financial markets there are standard contract sizes. For example for the FTSE 100 index contract the standard market size is £10. With financial spread betting the investor nominates his own stake size, for example £2 per point. The bet is settled as the difference between the purchase and the sell price.
Spread betting is an exciting way to trade that lets you speculate on all of your favourite markets – shares, indices, commodities and currencies – and choose how much or little to stake per trade. The best part is that spread bets are exempt from capital gains tax, so you can trade tax-free unlike conventional share trading where CGT applies to trading gains in many countries.
Let's be straight here. Financial spread betting is risky business. It's high octane. It's not for widows and orphans. In fact, spread betting may seem daunting to even the most sophisticated investors. The risk of losing more than your initial deposit means that it is especially important to learn about how spread betting works, before you even start thinking about placing your first trade. Moreover, like doing anything that takes risk, you can take precautions to help minimise its impact and in spread betting there are many skills you can develop to help cut down your trading risk.
But spread trading is also one of the easiest and cheapest ways for a private investor to back their hunches with hard cash. For day trading spread betting may be a better bet. Pardon the pun
. And if you call the market right, you can make big gains, very rapidly. I just think it is important to not get too carried away with the potential rewards because chasing potentially silly returns can lead to really unfunny losses.
The fees are in the spread - so watch the spread. There is no CGT, stamp duty, explicit trading commissions. Trading on margin allows traders and investors to open larger positions, which makes it viable to target relatively small price movements. But bear in mind you may still need the money to back it up!! You can place stops/limits on your losses (at a cost) to prevent you from losing your shirt. And don't forget, importantly it's easy to place down bets which means that you can use spread trading to sell short so as to profit from any correctly predicted price declines.
This is the ultimate guide to financial spread betting - how to do it, have fun and hopefully make a few quid. Our guide covers an impressive amount of ground, starting out with tutorials and learning about spread betting right down to working out exposure and the psychology of making a trade. Learn the mechanics and advantages of spread betting, including short selling and trading on margin. Plus how to develop a trading plan and the fundamentals of risk management.
Continues here - Spread Betting Basics and Summary
