Welcome to the world of spread betting. The Financial Spread Betting Course will introduce you to the ins-and-outs of this form of trading. In fact, by the end of the course, you should be set-up and ready to start spread betting. Over the next lessons you'll learn how to open a spread betting account, how to use stop losses to minimise losses, how margin trading and shorting works and all the basics you need to get started. The course also explains how to use world indices to make big money. And if you're having trouble choosing the right trade? Well, you'll learn how fundamental and technical analysis can help you spot that winning trade - by both going long and going short. At the end of the course, you will also receive a full glossary of spread betting terms, something that no spread better can do without. Well, without further a due, let's get started.
Spread betting is creating a revolution in the financial markets by allowing everyone access to a new world of opportunity. There are no barriers to entry with spread betting, apart from your level of enthusiasm. Even money should not be a problem and you do not need to have City experience.
For once it is not an area where those in the City get to gain at the expense of all those who do not belong to their elitist club. Indeed, in many ways, with spread betting, private investors hold all the aces. And soon, you'll hold all the aces too.
What Spread Betting is - and isn't
The type of betting you are probably most familiar with is rather different from financial spread betting. In normal betting, you are taking a view on a horse race or a football game and are looking for a particular result. But in financial spread betting, the bet that you are making is not this fixed result, a single moment in time. You don't 'bet' that BP shares will hit 439p on 28 January, for example. Instead, you place a bet on whether you think a share or a market will be higher or lower in a few months than it is today.
Spread betting should be regarded simply as a way of backing your view on where the financial markets are going. Like anything else, the more you get it right the more money you make. But it is not a game. If you are wrong you will lose real money.
How Spread Betting has revolutionised the market
Spread betting was first offered by Stuart Wheeler in 1974 when IG Index opened its first market on the gold price. As with share futures, clients were able to bet on where they saw the gold price going in the future. This product took off rapidly and soon spread to the financial world. In 1985, IG Index offered its first financial spread bet on the FTSE 100 index. The rest, as they say, is history. And now you too can use spread betting to maximise your gains.
These days most spread bets are placed online although telephone dealing is still provided at most companies. Mobile trading is also becoming increasingly popular.
Six Advantages of Spread Betting
There are six main advantages to spread betting:
Spread betting profits are tax free and free of broker commissions
The major advantage of spread betting is that all profits are free of capital gains tax (CGT), and potentially UK Income tax too. It is difficult enough right now to make money on the markets, without the Inland Revenue taking away a large proportion of the gains. Also, as opposed to normal share trading, there is no 'commission' or 'UK Stamp Duty' (0.5% of the trade value) to pay.
Avoid stamp duty.
Share trading incurs a 0.5% stamp duty which reduces the effectiveness of day-trading traditional stocks and shares. When buying a spread bet on the same share, you do not which adds to the appeal of spread betting.
Avoid commissions.
With spread betting there is no commission attached to your trades. Commissions start at around £15 and are payable on both sides of trades. On Capital Spreads, for instance, the entire spread around the underlying market price in FTSE 100 stocks is just 0.1pc (i.e. 0.05% above and below the bid/offer on the London Stock Exchange). On a trade at £50 per point (equivalent to 5000 shares) for a commonly traded stock like Barclays at £3.50 would cost a buyer (if he paid only £15 opening/closing commission) £102.50 in various fees/taxes. With Capital Spreads he would pay just £8.75. To put this into perspective Barclays is traded on about a 0.5p bid/offer spread on the Exchange. Your various costs would add over 2p to the price. This far outweighs any resulting benefits of being able to place your order within the spread on a Direct Market Access platform.
Avoid capital gains tax.
A 0.5% saving on stamp duty is useful but it is not the kind of money that most retail investors will get out of bed for. The real advantage is that profits are free of capital gains tax in the UK, Ireland and to my knowledge Australia. As the Inland Revenue treats spread betting as a gambling activity, you are not liable to pay capital gains tax on your profits (technically, your 'winnings'). This by itself can save you 18% of potential profits in the UK and probably much more than this in Ireland/Australia.
Avoid tax on dividends.
Owning a share of stock is the same as owning a piece of a company and this entitles to a dividend; but this is also treated as income and tax is payable on dividends. Spread bets do not pay dividends but the dividend is still factored in the price so if you're a holder of a share that pays a dividend you still stand to benefit from this in the form of a tax-free capital gain, as opposed to taxable income.
You can minimise risk by restricting your losses
With spread betting, you can guarantee your 'stop loss', or the point at which you exit your trade. A conventional share purchase also allows you to set a stop loss, but this is not guaranteed. Therefore, when your share moves a great deal overnight, your broker may not be able to get you out the next morning at the stop-loss price you requested. But spread betting is different. Even if the shares move a great deal, you'll still be taken out of the bet at the guaranteed stop-loss price you asked for - the spread betting company has to swallow the extra cost itself.
Use bear markets to your advantage by going short
'Going short' means reversing the normal process of buying low and selling high. When you go short you first sell high and then buy low at a later date. You do this by borrowing shares from a broker in order to sell them. When you buy the shares, you're actually merely giving back the shares you borrowed. The further a market falls, the lower your buying price and the more profit you'll make.
Going short of a market or share is something that only insiders or the rich were able to do until recently. In a bear market, going short is one of the few ways of making money and spread betting is the easiest and most efficient way of doing this.
Here's an example on how to profit from going short:
You believe that AstraZeneca is overvalued.
The spread betting company quotes you 1864 - 1872.
You 'sell' £30 a point at 1864.
The market then slumps, dragging AstraZeneca with it.
The company is now quoting AstraZeneca at 1844 - 1852.
You decide to close your position at 1852.
Your profit is (1864-1852) x £30 = £360, free of capital gains tax.
One of the most famous bear spreadbetters in the markets in the last decade has undoubtedly been Simon Cawkwell, aka Evil Knievil
You can start small with spread betting - before hitting the big-time
With spread betting you can choose exactly what the size of the bet is going to be. The range can be as low as 1p 'a point' with financial spreads to hundreds of pounds per point. This means that not only can you trade as small or as large as you like, you can also enter and exit positions in stages.
You can lock in some profits, but keep the bet open
Unlike betting on a horse, with spread betting you are not locked in until the result is known. You can close a bet at any time, even just a few seconds later. And you can also close off part of the bet to lock in some profit, but keep the remainder of the bet open in order to try to make more money.
Use it to hedge your portfolio
Hedging has only been available to large institutions, banks and wealthy individuals until very recently. As an example, if you think the property rise has been unsustainable, you can hedge against the value of house prices going down by spread betting on the property market.
Small investors can now compete on the same level as the large financial players, giving the equity market a new dimension. This aspect of spread betting is still a point that is under-emphasised in the mainstream financial media. In some ways this is hardly surprising, because if you gain knowledge of even the most basic aspects of spread betting you should be able to manage your own financial fate at least as well as the so-called professionals.
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