Trading The Markets After A Recession
So it looks like we have avoided a 1930s style depression however the current forecasts still suggest slow growth and a difficult time ahead
. So what should you do in a difficult environment with your own finances?
If we were to be honest with ourselves, then we should probably accept that we can improve on at least a couple of the following; tax efficient investments, long term investments, actively reviewing our existing investments and looking at new opportunities that the financial markets are currently providing
I am sure we all appreciate that we could benefit from planning more. That is not to say everyone is simply sitting on their hands. Many people actively trade stocks and shares.
The increase in the popularity of spread betting is understandable. A few of the attractive benefits include the fast nature of placing a trade and the large variety of global trading options on offer.
Naturally, as with all types of investment, be it on Stocks and Shares, ETFs, pensions etc, there is a negative side and with spread bets you need to be careful because you can lose more than you initially invested.
If there is a risk to your capital then why should you contemplate
spread betting as part of your investment strategy? Spread betting can be beneficial on a number of fronts, from tax efficient investments* to ease and speed of making a trade.
There are many benefits. For example, spread betting profits do not incur capital gains tax*. You are not actually buying and selling any assets or stock or shares. You are simply speculating on the future price or value of a particular financial market.
As discussed, investing does have its risks. Nevertheless, there are things you can do in order to reduce your downside. Adding a Guaranteed Stop Loss Order to your spread bet helps reduce your risks. If you start to lose on a trade and the market continues to move in the wrong direction but hits your Stop Loss then your trade will be closed and you won't lose any more money.
In order to spread bet you do not take possession of any assets or stocks. You are just speculating on the future value of a market. This allows you to place trades quickly and with little fuss, an important feature 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
Capital Spreads and FinancialSpreads.com, will also let you trade markets like Crude Oil, Gold, the German Dax and the UK FTSE from Sunday evening all the way through to Friday evening.
So whilst there are a good number of positives, it is important to understand the negatives.
Spread betting carries a high level of risk. You should only speculate with money you can afford to lose. Like the adverts say, before you trade, ensure that spread betting matches your investment objectives, make sure you familiarise yourself with the risks involved and, where necessary, seek independent advice.
What else should you consider when trading?
In the numerous chat rooms and internet forums there are many trading tips and theories. Some are fairly sensible, some less so. The following includes some of the more common principles.
It is worth having a look at a spread trading practice account. These are free accounts with virtual funds. If you are less familiar with this form of trading then a little practice should help you understand the positive and negatives as well as the various types of bet you can place.
Greed can be your worst enemy when trading. It can be tempting to trade lots of positions in lots of different markets. Personally, I tend to trade 0-5 markets at any one time. I have no idea how anyone can fully research and make informed decisions on 20 open trades, especially if they start moving against you.
* Since you are placing a bet rather than buying an asset or share, it is treated like a bet by the UK and Irish tax authorities which means your profits are tax free. Tax laws can change.
by: Thomas Bainbridge
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