Financial Spread Betting or also known as Financial Spread Trading is sometimes thought of as a short-term business, in which bets are placed for a few days or even hours in search of quick profits. It is certainly possible to do well out of short-term spread betting but you shouldn’t overlook the possibilities of betting over the long term too, as there can be significant advantages over traditional share trading in terms of convenience and cost.
Spread betting involves less difficulty than share trading and it can work out More cost effective, because of the costs involved in buying and selling shares through a broker. You pay commission when you buy and sell shares (this might be £10 each time on a small trade, more for larger ones) and stamp duty of 0.5pc when you buy. These dealing costs can make a big dent in profits and increase your break-even point.
With financial spread betting, the cost of a quarterly bet is included in the spread and there is generally no tax to pay* (though you should check your tax situation). Because financial spread betting is leveraged – you are not buying the underlying shares – capital outlay is much lower than in traditional share trading. Think of it like a mortgage on your house, you get to buy an asset with just a percentage upfront.
Short-term bets of a few hours or days can be a good way of taking advantage of sudden shifts in price. Many traders like to place short-term bets on market indices such as the FTSE100 or the Dow Jones, where movements are often the result of macroeconomic trends.
When betting short-term, it is advisable to keep a close eye on the way the market is moving, so that you can get out at the right time. Automated share price alerts make this easier and now most financial bookmakers such as IG Index have Apps which allow you to check prices on the go from your phone or iPad. Financial Spread betting in the longer term – weeks or months – allows you to take a view of the fundamental strengths of individual shares, without worrying too much about short-term price fluctuations. By using a longer dated contract you are not as focused on short term moves.
Spread betting is similar to share trading, although it is important to use stop-losses to help manage risk by limiting the amount of losses you can make on a single trade. When you place your bet, you specify a lower limit: if the share price falls to that limit, the bet is automatically closed and you will suffer no further losses. Anyone with experience of share trading can use the knowledge they have gained when spread betting. Also make sure you use money management and only place a percentage on your trading account on any one particular share.
For a small premium you could take out a guaranteed stop-loss. This removes the risk, present in very volatile markets. Your position will close at the level you set. With a guaranteed stop-loss, your risk can never exceed the chosen level.
With short-term bets, it is a good idea to set a narrow stop-loss limit, so that you are not caught out by a sudden market swing. With long-term bets you can set the limits a little wider – and the potential profits can be considerable.
*Tax laws are subject to change and depend on individual circumstances
Some of the advantages of Financial Spread Betting
1. There is usually no stamp duty or capital gains tax* to pay on profits
2. You can control the risks by using a device called a stop-loss
3. You can use your existing share-trading knowledge of the markets
4. Bet wherever and whenever, even when some markets are closed
5. You can open positions without paying full shareprice – through leverage
6. You can profit from falling share prices (going short) which is normally not possible with most stockbrokers
7. You can use Financial Spread Betting to hedge an existing portfolio
8. You can trade non UK shares just as easily, for example US, Australia, European shares all from the same account.
Before starting financial spread betting it pays to get good training. Vince Stanzione
has been trading for 28 years and has produced a course called Making Money From Financial Spread Trading, to find out more just go to http://www.fintrader.net