Online trading can be a wide and varied environment, so you may be looking for something simple to pick up while still being affordable. Spread betting is a trading instrument available to anyone in the UK or Ireland and offers a wealth of potential with a host of assets and leveraged funding. The most attractive feature for many is the fact that underlying assets are speculated on and not owned, so the potential risks are lowered.
What to know about spread betting
Leverage is the aspect of spread betting that makes it so affordable, but there is the potential to scale up if and when you have more collateral. Leveraged trading opportunities let you deposit a small percentage towards a more expensive position, as your chosen broker will loan you the rest. Both parties will take their profits from the price movement between the buy and sell price of a spread betting trading ticket. This is one of the only trading types that allows traders to speculate whether market prices will go up or down and still potentially make a profit (depending on the success of the trade).
Leverage trading does have its risks however, as losses will be taken across the entire ticket and not just your portion. Many beginners in the niche aren’t aware of this fact and may be surprised by how high their losses can go with just a few bad decisions. There are ways to minimise losses however, in the form of trading strategies, solid trading plans and tools like stop-loss orders.
How does spread betting work?
The trader will define how much they want to place on any given trade for each movement in price by point (this will vary depending on the asset you choose, your budget and even the rules of your broker). Each point that moves how you expect will increase the value of the spread until the position is closed - and adversely, the more it moves in the opposite direction, the more you’ll lose. The bid and the ask price are what you will use to determine whether to buy or sell - and calculate how much you can potentially make.
Finding the right Spread Betting Trading platform
It is imperative to select the right trading platform, such as CMC markets, to ensure you have the best possible chance of making the most worthwhile trades possible. The features and tools on offer will vary from platform to platform, so do some research before signing up.
Why spread betting?
The fact that spread betting can be a good selection for both beginners and more advanced traders is one of the biggest plus points, but here is a rundown of some of the other advantages:
- Taxation benefits
- Trade both rising and falling markets
- Access to leverage
- 24 hour access for spread bets on stock markets, commodities, indices, currencies and more
- No commissions
- Limited currency risk exposure
- Increased trading opportunities
2 popular spread betting strategies
News-based trading strategies offer deeper insights into how the markets are performing in terms of social and economical factors. As breaking news can affect the financial markets, being aware of how impending factors may impact trading (like upcoming elections) can help to keep you one step ahead of the game.
Many new traders take advantage of a strategy called momentum trading, as it requires individuals to follow the general market sentiment and trade based on trending assets and niches. As a host of trading platforms have a copy trading function, it can be simple to get started with this, so be sure to concentrate on market volume and how much money those with a high level of experience are placing on their most copied endeavours.
Types of spread betting
As spread bets can be placed during varying time frames throughout trading sessions, as well as on different assets, there are a few ways to get involved, including:
- Daily spread bets
- Rolling dailies
- Futures spread bets
Benefits of spread betting
There are a host of benefits to consider with spread betting, such as:
- Tax-free for residents of the UK and Ireland
- No commissions
- Opportunities for long and short positions
- Easy-to-understand price structuring
- No currency risk
- Leveraged trading capabilities
- Low margin requirements
- Variable contract sizes
- No asset ownership
- Accessible for beginners and more advanced traders
One of the biggest advantages for many individuals is the fact that the options are almost endless when trading, as the only limits are those set by individual brokers. This means that those with the right experience and skill can take up any number of high-value positions and make the most of their trading efforts with just a little research on the trading platforms that will facilitate their needs. It can be worthwhile to check out spread betting news, too.
- Long positions will have daily financing costs
- Losses can quickly build up
- Only available in the UK and Ireland
- Losses cannot be offset against capital gains
- Spread bets have an expiration date
- The fees associated with spread betting can be numerous and complicated to understand
One of the biggest disadvantages is that if the market moves too far against the bet placed, a margin call may be triggered on the trading platform. This will occur when the funds in your account aren’t great enough to cover the threshold amount (this may be set by the broker or industry regulators), so you will need to either deposit more or close any open positions that will raise the equity before your account is closed down.
Is spread betting going to be the best option for trading?
The answer to this question will depend heavily on the time and commitment you have to dedicate to trading, as well as other factors like your goals and initial budget. While it can be a good choice for some, others may see more success with alternative methods. Risk management should always be practiced no matter the trading devices you use and it can be worthwhile to practice via a demo trading account before risking your real funds.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.