Who uses Spread Bets?

While spread betting, contract for difference (CFD) trading, and binary betting get quite a lot of press, we estimate that there are currently only 125,000 active financial bettors, and 425,000 individuals with financial betting accounts globally - 90% of whom are based in the UK. However, we estimate that financial betting will experience explosive growth in Asia, and CFD trading, in particular, will become much more common in continental Europe.

One of the main drivers of growth is the lack of volatility in the traditional financial markets - with financial betting instruments such as binary bets, active traders can create a volatile situation with constantly changing prices and odds, even if the underlying market only moves slightly.

SpreadBetting for Active Traders

Active traders can be anyone from the big Day Trader, turning over tens of trades a day to the trader who takes the odd punt once or twice a week. Anyone falling into this category will benefit mostly from these three aspects of spreadbetting:

Massive Stamp Duty Savings.

Fastest Execution.

Because you are not physically buying or selling the stock the broker is not slowed down by having to step into the market and execute that trade for you. This will mean that typical execution times are higher than with a conventional broker

Increased Liquidity.

If the trades are not being executed directly into the market then Spread Bets increase the amount of stock available for everyone, making for a healthier market as a whole. It also means that if you are trading off charts then the fact that there may only be a few thousand shares available in the real market at your required price becomes much less of a problem.

SpreadBetting for Short Term Traders

The short-term trader is typically the person who is not looking to 'job' their position out from the moment they create it. Sometimes called 'swing' or 'momentum' traders these days, you are someone who takes advantage of value plays, news events or longer term chart trends, as such you have a slightly different series of requirements from the faster trader:

Low deposit requirements.

Freeing up huge amounts of capital for other trades or investments

Low commission levels.

Important for everyone really but this is probably the most significant cost for you.

SpreadBetting for Investors

This is the third type of Spread Bet user and on the surface will appear to be the most unlikely, but it is important to recall that Spread Bets were originally created as a hedging tool for the investor and not the trader and is still used as such, along with other features which make it an invaluable tool for the investor to have at his disposal.

Low costs of entry and exit.

Hedging strategies.

Allows a long term holding to be managed in a mature fashion through the market movements, which will occur over the time span of the holding. Selling short during a long down trend will allow you to profit from the fall as well as reduce your exposure and increasing your exposure in an up trend will create much higher returns.

Tax management.

This is an arrear to be discussed with your broker and accountant but CFDs are an important tool in the absence of Bed & Breakfasting in order to control your tax exposures and utilise your Government allowances.

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What can you spread bet on?

stock indices (FTSE, DAX, DOW, CAC, S&P)
single shares (US, UK, European)
commodities (gold, silver, oil)
bonds (Bund, Gilt, BOBL, JGB)
other products (property prices, weather, interest rates)
special interests (how many sips of water the Treasurer Gordon Brown will drink while announcing the Budget!!)
sports

In most cases, there are two prices quoted for each product:

Daily or intra day bets - for bets that expire at the end of the day. Again, you can close this anytime before the day ends or roll it over to another day.
Quarterly bets - for bets that expire at the next quarterly expiry date. Again, you can close this anytime before the date or roll it over to the next quarterly date.

For example the FTSE - Daily may be quoted at 4306 - 4310 while the FTSE - 16 Sep '04 may be quoted at 4312 - 4318 points

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