An Introduction To Spread Betting

The world is in recovery mode and many people are still questioning how the markets got so out of control. They are also questioning something a little closer to home, their own finances.

Some people will be looking for more tax efficient investments. Others will want to diversify their existing portfolios as well as look at new investment opportunities.

A growing number of individuals are making use of a newer, highly regulated, form of trading. Investors are looking for fast and simple access to global markets. Many are turning to spread betting.

There are downsides to all forms of investing and with spread trading you need to be careful because you can lose more than your initial investment.

Spread Betting

Why trade? Spread betting can be beneficial on a number of fronts, from tax efficient investments* to ease and speed of making a trade.

There are a good number of benefits; for example, unlike trading stocks and shares, you do not incur any broker’s fees or commission charges.

I like the flexibility and ease of opening and closing spread bets. If a particular market moves against my position then I can close a trade in order to limit my losses. Likewise, I like the fact that, if I am ahead of a particular market, I am also able to close a spread bet early in order to lock in the profit.

So whilst there are many positives, it is important to understand the negatives.

Spread bets carry a high level of risk so you should only speculate with funds you can afford to lose. Before buying and selling, please make sure that spread betting matches neglect the objectives, familiarise yourself using the risks involved and, if required, seek independent advice.

Are there any other factors that you need to think about?

In the various internet forums and chat rooms there are many trading tips. Some good, some less so. The following includes a sample of the more sensible ideas.

A Stop Loss helps control your losses. A Limit Order helps you control your profits. If you apply Stop Losses and Limit Orders to your spread bets these can help you get in and out of the markets at specified levels. Setting a Stop Loss is an important part of your risk management.

Risk Management

If you are new to a certain market it can be useful to trade it via a demo account first. A number of firms offer these for free. A demo account simply lets you trade the markets with virtual funds. In other words, it is risk free.

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, eg Tradefair Spreads, 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.

* Based on current UK Tax law, this may change or differ depending on your personal circumstances.