Benefits Of Spread Betting
Spread betting gives traders exposure to the current financial markets without buying the actual trading assets. Traders don’t buy or sell assets. Instead, they take positions on whether the market will fail or rise, allowing them to profit from market movements by only depositing a portion of the total value of the position.
Spread betting exposes traders to positions that require a value larger than the initial deposit. The costs of asset ownership don’t apply because traders do not trade the actual asset. Here are the top three benefits of spread betting.
Leverage to maximize profits
One benefit of spread betting is the fact that it offers a leverage, which is also known as a margin. Once you decide to spread bet, you will only need to deposit a small portion of the total value of your position because it is leveraged.
Consequently, you can make a bet without pulling down the full value of the position as you would be required to do in stock brokerage. Your funds are therefore not tied up in one trade, allowing you to use the remainder for other investments.
The leverage gives you a higher potential for either profits or losses from the primary capital outlay. Margin factors start at only 0.5% for currencies, although they are dependent on the market that you are trading on. The risks and rewards of spread betting are magnified, whereby the rewards are higher than those of traditional trading while your potential loss can be higher than your initial deposits, particularly if the market experiences sudden movements.
Ability to go short or long
Spread betting is one of the few ways of financial trading that allows you to make profit when there are falling market prices. Subsequently, this form of trading gives you exposure to various market movements regardless of whether the market prices are falling or rising. For instance, you buy when the markets are going to rise.
This implies that your profits will keep on rising as your price increases while your losses will keep increasing as the price decreases. On the other hand, if you predict that the market prices are going to fall and decide to sell, your profits will increase in line with any price fall while your losses will rise with any rise in the price.
Trade on a wide range of market
Spread betting makes it possible for you to place trades on commodities, interest rates, bonds and have positions on thousands of specific currencies, shares and indices. It has numerous ways of managing your risks thanks to the wide range of flexible online orders which are free to use. These orders include stop losses, one-cancel-other orders and limits. The presence of a wide range of trading opportunities in global markets makes spread betting the ideal form of financial trading for those who wish to explore numerous financial markets.
It is clear that spread betting offers many advantages over conventional trading. In addition to the above mentioned benefits, there is no stamp duty in spread betting and the returns are free from CGT or Capital Gains Tax because it is classified as gambling. All the same, it is good to note that tax laws may change and they are dependent on personal circumstances. Only speculate with the amount you can afford to lose and more importantly, ensure you understand the risks involved fully because the leveraged products and positions take a high degree of risk.