Why spread bet rather than buy shares? Tax-free, profiting from falling markets and leverage are the reasons spread betting is an ever more popular tool. The combined effect of commissions, stamp duty and market spreads usually means that for the short-term investor it's simply cheaper to open a spread bet than to actually buy and sell shares through a brokerage house.
In the past, the spread firms made a name for themselves during high profile flotations, creating a so-called 'grey market' and betting on where a company's share price would close at the end of the first day's trading. This was risky business but served as an attention-grabber, particularly when some of the big state enterprises were being privatised - given those circumstances it was natural for spread betting companies to start offering bets on equities to meet the popular demand.
IG Index was the first to start offering bets on a select number of FTSE-100 stocks. The range of opportunities available today are vast and varied - nowadays it's possible to bet UP or DOWN on any FTSE 100 or FTSE 250 shares as well as a limited range of AIM listed stocks. You can also bet on US shares including all DOW 30 shares, all of the S&P 500 Index and Nasdaq 100 shares as well as many of the largest European, Asian and Australian securities. For instance, companies such as Pfizer, Google, Puma, BMW and Toyota are quoted by most spread betting proviiders even though they trade on markets outside the UK.
One difference between spread betting on UK and non-UK shares is the way that the price is quoted. For every penny a UK share price moves, you make or lose your chosen bet size, given in Pounds Sterling (£), or Euros (€) if you live in Ireland. The price on US shares and some European shares are quoted in US dollars (US $) or Euros (€) but for each cent movement you make or lose the £ amount you chose to bet. European countries not using the Euro will have stocks quoted in their relevant currency, for instance, Swiss shares are quoted in Swiss francs (CHF).
Betting on individual shares is no different to spread betting the indices - the gearing is the same. The other advantage on betting on equities as opposed to index sectors, indices or commodities is that there is more information available in that you can actually check the company's profit & loss accounts and maybe even try their products for yourself or give the directors a ring (and/or visit the company premises!). Also, as opposed to index futures which are heavily traded on greed and psychology and therefore are very volatile and fluctuate a great deal, shares are, in my opinion easier to trade (less prone to getting stopped out) especially if you rely on technical analysis.
Spread betting offers several advantages when compared to buying the shares from a stockbroker - there is no stamp duty and no dealing commission apart from the bid-offer spread. Also, profits are not subject to capital gains tax and traders can easily bet down on a share price as well as bet up. So even though the spread on a particular share (bid-offer spread) is always likely to be wider than the gap between the bid and offer price for that share on the stock market, spread betting on stocks can be more effective than buying the underlying stock (since there are no dealing commissions or stamp duty and trades are usually highly leveraged).
The stock market provides a more favourable environment for small investors than trading forex where you are basically trading against every major financial institution. Institutions still have some advantages such as easier access to management but the scales are less imbalanced than in any other area.
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