A beginners guide to Spread Betting, and whether it’s right for you
Spread betting is a form of derivative trading that allows investors to trade the financial markets but without owning the underlying asset. This means that you don't actually own the shares you are trading and instead are trading rather on the direction the share price will take - whether they will go up or down. With every stock index rise or fall you win for every point the trade moves in your favour and lose for every move against you.
As spread betting is carried out through online platform, these platforms can offer a huge range of global financial markets which you can bet on all in one spot. This, rather helpfully, means not having to go to a stock exchange for shares - all you need to do is select a market, decide on a deal size and place your bet, choosing sell or buy.
Unlike with other forms of trading, with spread betting you can still profit from falling markets. With traditional trading, you invest in an asset believing that the price will go up and you can then sell it at a profit. In other words you only invest in assets you believe will go up in value. With spread betting you are placing a bet on the direction in which an asset’s price will move, allowing you to take a bet on both rising and falling markets. This makes it more attractive - and more advisable - for someone who is new to trading.
Spread betting allows you to:
- benefit from a second source of income
- access financial markets worldwide
- only initially have a small amount of capital to open a trade
- profit from spread betting being tax-free in the UK
- trade 24/7 - and even from your mobile device! With traditional trading most of the markets have set dealing hours, whereas with spread betting, when the market you're betting on is closed, you are still able to bet. Some spread betting providers allow you to deal on certain markets around the clock
- diversify an investment portfolio
Having gaged a better understanding of what Spread Betting is and how it works, if you're interested in spread betting the next thing to cover is how to get started. it’s extremely important deciding which company to use, thoroughly researching and ensuring they are a reputable company. This is particularly important because a trader can lose more than what was initially deposited to open a trade and to avoid this, you need to have the right risk management tools in place - so as to curtail your losses. One of the leading providers are
CMC Markets, who are regulated by the Financial Conduct Authority. Ideally, you will want to look for a company who consistently shows impressive growth and puts great emphasis on customer service and satisfaction, as well as provides platform options with a host of charting tools. Make sure to check that any company is in accordance with the Financial Conduct Authority when making your selection.
With spread betting you will need to research the stock or index that you’re interested in, but good spread betting companies will offer excellent information and advice to educate their clients. The most popular spread bets are gold, oil and the major currencies, and so these are something to look for. You then place a bet on the price and which way you think it is going to go - and as already mentioned, you’re able to profit whether the price goes up or down. Once you have selected the company you want to trade through, all you need is a small amount of capital to put forward and you are ready to start trading!
Now that you have a better understanding of what Spread Betting is and how to get started, you can decide whether you feel it will suit both your lifestyle and financial situation.