Speculative Investor: Spread betting lets you take a gamble on the price of gold, sugar, cotton and even pork bellies

Trading Global Financial Markets Vince Stanzione

Financial Spread Betting has attracted growing numbers of people because it is fast and furious — and free from stamp duty and dealing commissions. Profits are also exempt from capital-gains tax.

It is ideal for short-term speculators looking for opportunities to profit from a range of volatile markets. The ability to “sell short” also means that people can make money when markets are falling. It is this feature that has attracted many disillusioned equities investors.

Spread betting involves speculating on the daily or future price movements of shares, commodities, currencies and indexes, and their associated futures and options. The spread-betting company quotes a buying and selling price for each financial instrument. The difference between the two prices is the spread, typically 0.2% of the underlying asset.

For every point (or penny in the case of share prices) that you are right or wrong in your prediction you win or lose a multiple of your original stake.

For example, if you thought the FTSE 100 index still has further to rise, you could either bet on the daily movement of the index or take a longer-term view and bet on its likely position in a few weeks or months.

Spread betting is a useful way to invest in gold and other precious metals because you can benefit from price rises without having to take ownership of the underlying assets.

The recent hike in the gold price, global economic worries, a falling dollar, and struggling equity markets, has been a godsend for spread betters.

On August 6, IG Index was quoting a spread of $1208.3/ $1209.3 for the price of gold per ounce. If you had placed a buy bet in the expectation that the gold price would rise and had staked £100 a point (in this case, one point equals a 1 dollar movement in the price), you would have made a £14,100 profit if you had closed your position after two months. Then, IG Index revised quote was standing at $1359.0/$1360.5.

So sold at 1359.0 bought at 1209.3 = 149.7 X £100 = £14,970 profit

Note whilst Gold is priced in US$ a spread bet can be made in pounds, Euros or US$

Spread-betting companies will often allow bets of up to £10000 a point providing you have enough cash in your account to cover potential losses. Unlike with fixed-odds betting, spread-betting losses can be rapid and unlimited, making it a higer-risk business.

In an effort to minimise the risks and attract more mainstream investors, spread-betting companies have introduced guaranteed stop-loss systems that automatically close client positions if losses reach a certain level. Investors pay a premium for this service in the form of a wider spread.

If you make a controlled-risk bet with IG Index they will close the position after the market has moved against you by your chosen stop loss limit for example 24 points. So if you make a £2-a-point bet, all you need to have in your account to cover potential losses is £48. Apart from the obvious cost benefits, spread betting offers several advantages over conventional share trading.

First, you can bet on all manner of instruments from within the same account. Second, you can open an account with very little money because you don’t ever physically own any of the assets you bet on. Third, you can place your bets 24 hours a day, giving traders the ability to react to American index movements and company-related announcements after the British markets have closed. Just remember, it’s a risky business and you should only use risk capital also it’s worth getting some good tuition before you dive in.

One of the best know courses on the subject is written by veteran trader Vince Stanzione which comes with a 160 page workbook and 2 hours of DVD material where he shows you the ins and outs of successful spread betting. The course also gives you access to a virtual account so you can try his methods without risking real money. The course costs £347 and is available from www.fintrader.net

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