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| Tradefair's guide to financial spread betting |
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| Written by Tradefair | |
| Tuesday, 17 August 2010 08:23 | |
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What is financial spread betting? Here spread betting providers Tradefair give a brief overview of the basics behind financial spread betting.
Financial spread betting firms are effectively bookmakers that allow you to bet on the performance of anything from commodities and shares to entire indices and currencies. When you place a spread bet, you are not actually buying or selling anything, and this means that you do not have to pay stamp duty or capital gains tax. It also means that you can make money from the financial markets without needing a large amount of starting capital. Usually, a spread betting firm will list two prices for any particular product – a buy price and a sell price. The buy price is usually slightly higher. A buy trade, also known as an up bet, is one that you would make when you think that the price of something is set to rise. A sell trade, also known as a down bet, is one that you would make if you think that the price is set to fall. Lets say that the FTSE 100 is listed at 5400-5500. If you think it is going to rise, you would place a buy bet at 5500 for £10 per point. If the spread then rises to 5500-5600, you would make a profit of £1000, but if it fell by 100 to 5300-5400, you would owe the spread betting company £1000. Similarly, if you think it is going to fall, you might take a down bet at £10 per point. Then, if it falls to 5300-5400, you would make £1000, but if it went up to 5500-5600, you would lose £1000. Because the movement of the instrument you are betting on is the only thing that determines the size of gains or losses, there is no upper limit to how much you can win or lose. This can make spread betting a risky business, and if you are not careful, you could end up losing much more than you can afford to pay. You can, however, limit your losses with a stop loss agreement that restricts the amount of money that you can lose on a particular bet. These usually also restrict the amount that you can win, but this is a small price to pay for a big reduction in risk. For more information on how to spread bet, visit the Trade Fair website. |
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| Last Updated on Wednesday, 26 January 2011 21:20 |
Spread Betting Lessons - Cut out the emotion!
Oh, and also a lesson why the Stop Loss is your Friend !
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Spread betting at a glance
- Spread betting is a financial product that allows retail and professional investors access to the widest possible number and types of exchange traded instruments.
- The spread betting company that you trade through is the market maker, the trader does not actually take ownership of any underlying product. Hence, most jurisdictions do not charge stamp duty on any gains.
- The notion that you don't actually own the product ensures spread betting platforms are able to almost instantaneously execute orders on behalf of their client.
- Spread betting is a leverage product, your money is able to realise you impressive gains as your earnings come in multiples of the actual change in the underlying product that you are trading.
- This is of course where spread betting can also go spectacularly wrong. Losses can be huge, therefore we advise those that are spread betting, or are looking to go into spread betting, to enter each trade with a well thought out strategy. This also means setting a pre-determined stop loss so that losses are cut at a manageable level.
- This website is here to offer more insight into this fascinating trading instrument.