Spread Betting vs Shares Dealing
New investors find it hard to make a decision on whether to invest in spread betting or shares dealing. These two forms are closely related to each other, although they have some differences that make each form feature some benefits over the other.
All the same, spread betting is considered as a better investment between the two, especially for investors who are looking for a short term investment strategy. The following is a close look at spread betting vs shares dealing.
Spread betting and shares dealing have four major similarities. These similarities are the ability to go long where investors buy to take advantage of rising prices and instant trading in the market and out of the market. In addition to this, investors can access global shares, and receive interest and dividend adjustments.
The major difference between these two forms of investment is that in spread betting, you never own the share or have any rights to own it because it is a just a way of market speculation. Traders speculate on whether the value of the asset will decrease or increase.
On the other hand, investors buy and own assets, shares or stock which they are planning to trade in. Subsequently, they have the ability to sell at a profit or loss depending on whether the price of the asset will rise or fall. Moreover, you can take advantage of falling share prices in spread betting which isn’t possible in share dealing.
Pros and cons of spread betting
Spread betting makes it possible for investors to trade on margin or leverage, meaning investors are only needed to pay for a portion of the actual cost of the trading. With spread betting, it is possible to implement the trade at any time independent of whether you are making a loss or profit.
You can also implement a limit or guaranteed stop loss order to stop the trade automatically should the prices go against your speculation. If you speculate correctly and make profits, your returns aren’t subjected to capital gains tax and transactions aren’t subject to stamp duty tax.
Some of the disadvantages of spread betting include the fact that it isn’t ideal for a long term investment and the losses can exceed your deposit if you predict the price rise or fall incorrectly. You are also required to pay an initial deposit which covers any loss that may occur in the course of the trade.
Pros and cons of shares dealing
The major advantage of share dealing is that you own the commodity or share making it easier for you to assess the market so as to decide whether it is time to sell your shares for a profit. This makes it an ideal long term investment strategy.
The cons of shares dealing are quite many considering that there is the risk of potential loss of money in case the company fails.
There is a potential loss of your investments in the company. It is not suitable for a short term investment plan because shares are likely to take a long time before making a profit as their price keep on rising and falling. Lastly, you will have to pay for both Stamp Duty Reserve Tax and Capital Gains Tax on any shares transactions and the profits made respectively.