Advantages Of Spread Betting
In the aftermath of the credit crunch, investors are learning from past mistakes and deciding to take greater control of their finances.
Opportunities in fluctuating markets, tax efficiency and planning investments for the future are all motivating forces.
Yes it takes time but the majority of readers would probably benefit from more financial planning, more research or even just taking at little time to think about their investment aims and objectives.
Having said that, there are a growing number of individuals who are making use of a newer, highly regulated, form of trading.
Spread trading, offers some interesting features and is worth considering as part of your investment strategy.
Any investment provides opportunity for making a loss. Share trading, buying a house and exchange traded funds can all lead to losses. With spread betting, these losses can be larger than your initial stake.
Its worth questioning, as with all trading of the financial markets, why spread bet?
Spread trading can be useful when it comes to easy access to the markets, investments with little or no tax* and the variety of risk management tools.
There are a number of positives. One key benefit is the variety of markets that the
spread betting companies offer. Markets on which you can speculate include stock market indices, FX (foreign exchange), commodities and equities markets.
I also like that you can close a winning trade and bank a profit but also that you can close a losing trade and limit your losses. Being able to part-close a bet also offers an interesting angle, ie closing part of your spread bet but keeping part of it open. This can be used to help lock in profits and restrict losses.
Being able to 'short' a market provides further interesting opportunities. You do not have to speculate on markets to go up. If your research leads to you think the price Oil will go up, you can, of course, bet on it to go up. However, if you think that a particular commodity or share will go down you can bet on it to go down.
With spread betting you do not actually buy or sell any assets. You are only speculating on the future price or level of a market. The result is that trades are often accepted automatically or at least in the order of seconds. An important benefit in fast moving markets.
Where to trade? A number of spread trading firms offer the usual benefits of letting you trade thousands of international markets as well as letting you trade outside normal market hours. Companies, like FinancialSpreads.com and
Tradefair Spreads, will also let you trade Crude Oil, Gold, the German Dax and the UKs FTSE 100 from Sunday evening all the way through to Friday evening.
Whilst there are many benefits, there are negatives. Spread bets do carry a high level of risk so you should only speculate with money you can afford to lose. Before you trade, please ensure that spread betting matches your investment objectives, make sure you familiarise yourself with the risks involved and seek independent advice where necessary.
* Tax laws may vary if you live outside if the UK or Ireland and can vary from time to time.
by: Thomas Bainbridge
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