Financial spread betting is one of the many forms of betting and investing in the global financial markets. Take note that these are regulated by the FSA or Financial Services Authority of UK. From a single betting account you have access to Asian, US, European and a whole host of world markets.
Through your account, you are now able to back your judgment if any of the markets will fall or rise in value. Similar to purchasing a share through a conventional stock broker, you then anticipate that its value will increase in order for you to sell it at a later date for profit.
Through spread betting, you can opt to bet that the market could rise or fall. If you are spot-on and the market acts as according to your preference, you will incur profit and your stake will multiply by every point the market moves to your benefit. But if you are incorrect, you will experience a loss of your stake and have it multiplied by every point that the market acts against you.
When you do financial spread betting, you need not own the fundamental asset which you have a bet on since it is an acquired instrument. The prices offered are derived from this fundamental asset and these costs move along with this underlying asset.
For instance, if you expose yourself to a spread bet on the share price of BP, you do not own the shares but would be selling or purchasing our cost for that share with the expectation of its share price falling or rising. As the underlying share cost of BP moves, the spread quote moves, this means the derived price moves down and moves up as similar to the real share.
Why Financial Spreadbet? Why Not Direct Access Market Trading?
Spread betting is a lot easier to understand compared to other types of financial instruments. Also, the process is less complicated for futures, options as well as contracts for difference. The platforms are also designed with this in mind so the actual trading process is a lot more simple with a spread betting firm.
Your winnings are tax free!
Or at least they are currently in the UK. This is a main advantage of spread betting in the sense that gains are tax free (it is free from income taxes, stamp duty and capital gains).
This appeals to various people especially those that make money that would be taxable and those that trade infrequently. If you trade every 1 minute scalping various markets the tax break of spread betting make not be a good enough incentive to trade using this type of instrument.
What Are The Risks In Spread Betting?
Spread betting has risks and benefits. Though it is a flexible method that is also tax-efficient, it is a good process to back your judgments on a slew of financial markets. However, in the absence of a successful risk management strategy, it could lead to significant losses.
Compared to conventional financial brokers, spread betting is a margined vehicle. This means that your initial capital investment provides exposure to a relatively larger portion of a fundamental market compared to if you purchased an instrument straight from a stockbroker.
This signifies that spread betting could lead to losses which exceed your preliminary deposit. In the absence of an effective risk and money management, it is possible to have large losses over a very short time period. It is critical to comprehend the risks involved as much as how you can effectively you can trade.
There Are 3 Keys To Controling Risk
You Must Understand Your Market
Before you begin dealing it’s vital to know what market you are going to take a position on. Understanding the market potential for experiencing volatility and recognizing a likelihood for sharp price movement can be crucial to evaluating your risk for each bet. An example of this can be seen in specific markets that have traditionally been less susceptible to sudden rises, and other markets like ‘shares’ which are many times subject to receiving profit warnings), might be expected to make quick movements.
Always Watch Your Trades
Another important aspect of risk management strategies is in the close monitoring of open positions. This become specifically relevant when you don’t attach a ‘stop/loss’. There are volatile markets moving hundreds of point within a matter of minutes. Possessing a good grasp of your chosen market can help you to pre-empt any fluctuations that are extreme in nature. This monitoring activity is absolutely necessary and cannot be ignored.
Control Your Initial Risk With Stops and Limits
You will experience times when you find it impossible to watch all your open positions. That is the reason a broad range of various order types is offered to you. It helps you to manage your risks without having a cap put on your profit potential.