Trading USA Stocks with Spread Betting

The USA share market is vast with more than 6,000 companies providing retail traders access to major companies and brands from all over the globe. The USA stock markets make up some of the biggest global markets in terms of both turnover as well as value; the market capitalisation for US listed companies in 2012 was a stunning $18.7 trillion compared to £3.3 trillion for UK listed ones. Given this, it is natural that you may be interested in trading on the USA stock market. After all, the US markets have the giant technology companies, such as Apple, Facebook, Intel, Google, Microsoft, and eBay, while the domestic markets are more inclined towards the stable types of companies, such as resources. But directly trading in the USA market can be a challenge. That's where spread betting can allow you access without leaving your domicile.

Spread betting allows you to bet as many £ per point as you want on a stock or on the market indices. It's easy to get started with a small amount of money, and you don't have to pay a commission for the trade, as the spread bet broker earns his profit from the spread between the buy and ask prices he gives you. What's even better is that profits from betting in the UK and many other countries are tax-free, and don't attract capital gains tax. As you never own any shares, you also do not have to pay any stamp duty.

The New York Stock Exchange opens at 2.30 pm UK time and is the world's largest and most liquid stock exchange having some 2,300 companies worth over $15.5 trillion. Companies traded on it include such familiar names as Walt Disney, McDonalds and Coca-Cola as well as the likes of Goldman Sachs, JP Morgan and Intel. Online spread betting is very similar to online share investing, and the trading platform is easy to understand. For the indices and for major stocks you will be quoted a buy and a sell price, and you simply have to say which you want with an amount per point. The spread between the prices, which is the broker's cut, simply means that the price needs to move in your direction a little before you start making a profit.

It's ironic to think that you are able to profit from the US stock markets tax free by gambling with spread betting when the US does not permit spread betting, and taxes any income from gambling winnings, whether in the markets or at Las Vegas.

If you're not familiar with the individual US stocks, you can bet long or short on the market indices. The most well-known may be the Dow Jones Index, more correctly known as the Dow Jones Industrial Average (DJIA) as there are many other indices compiled the Dow Jones company. Almost as well known is the NASDAQ, which is a more technically inclined stock market.

If you do decide to spread bet on the US markets, you should watch carefully for the spread quoted, as this can become quite large. Usually you will find that this is because you are looking at the prices when the US markets are closed, or in the first half hour of trading when it can be volatile. This means the brokers increase the spread to protect themselves from unexpected price moves. As daytime in the States corresponds roughly to the evening in the UK, if you want to spread bet the US markets this is something you can do successfully in the evening after work, and you won't suffer from the defensive spreads.

Tips for Trading USA Shares

  1. In the USA there are over 3000 shares with sufficient liquidity that they trade in a smooth fashion. The spreads are narrow; the movements are smoother and less jerky because the volume going through is much higher. Contrast that to some market maker stocks here in the UK. I get tired of continually getting shafted because of wide spreads, low liquidityÂ…etc which caused jerky price movements, and unable to get out of positions easily.
  2. If you are buying USA shares via a traditional broker you may need to fill in a W-8BEN Form to receive tax relief on dividend and interest payments in the USA. For those dealing in Canadian shares, you can fill in the NR-301 form to avoid from being charged excessive withholding tax being deducted from dividends. For other countries, the amount of relief available depends on tax arrangements between countries.
  3. Do note that USA shares are usually higher priced than in the UK. USA shares also tend to swing much more than those in the FTSE because of the high volume of trades which creates more volatility. They are also good for spotting bounces as it's not unheard of that a US-quoted share may drop a couple of hundred points or more in one day. However, because of this, to trade the US markets your spread betting provider will often ask for a higher amount of margin to cover the trades.
  4. USA markets are open from 14.30 to 21.00 so you might have difficulty dealing after UK hours (16.30). However, with a good online dealing platform there should not be much difference dealing in US stocks as opposed to UK stocks.
  5. Companies in Britain usually release results before the markets open at 8am, while the majority of US stocks either release their earnings updates before the open or after the closing session at 9pm UK time. Important economic updates in the UK are released at around 9.30am while in the USA economic releases usually come out at 1.30pm. In general, American companies have to abide with a high level of transparency with companies being obliged to report acquisitions, director dealings and trading updates.
  6. Do keep in mind that financial markets are highly correlated to each other on a global basis [what happens in the USA (S&P 500) and Asia] will directly affect the share price of companies located outside their borders. It may not sound right that what happens in the USA affect the value of UK shares but that's the way things are. Thus, a positive trading session in New York will help overall sentiment in London and the Continental European markets and is also likely to impact the opening of the Far East markets.
  7. Be careful about the dollar. It cannot stay strong when the Fed are printing currency like warned when taking a position in a company exposed to or quoted in dollars as short oil, long dollar could easily reverse as fast as long oil, short dollar did in the summer.

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