Why should spread betting interest you?

Spread betting appeals to a wide variety of individuals who want to take advantage of the versatility and great value that spread betting can offer.

Experienced investors use spread betting as an additional trading tool as the spreads we offer rival the prices available in the real market. Alternatively, many investors use spread betting to hedge their existing share portfolio. For example, if you have some shares, which are decreasing in value in the short-term, you could “Sell” the value of the share using a sell bet with Capital Spreads and possibly make a profit to counter-balance the decreasing value of your shares.

You do not need to be an experienced investor to spread bet, but you do need to research the products that you wish to trade and be aware of the risks associated with spread betting. Many individuals new to spread betting use technical analysis to guide their investment decision. Capital Spreads provide charts for every product we quote to assist you with your technical analysis.

One of the problems for spread betting companies is the word ‘betting’ as this gives a false impression to the marketplace. Spread Betting is in fact a highly adaptable trading tool. With a Capital Spreads account you can trade in many financial products using just one currency – we offer prices on UK, European & US shares, World Indices, Commodities, Foreign Exchange, Bonds and STIRS. You can bet on the Cash, the Future or our new Rolling Daily products.

Why should you spread bet?

Spread betting allows you to bet on a huge variety of financial products in one place and in one currency. You make your bets in one of 3 currencies (Sterling, US Dollars or Euros), which means you do not have to bother with costly exchange rates and can, in general, trade in your own currency.

Spread bets are margined trading products, which means you need only deposit a small percentage of the full value of your trade leaving your excess capital to continue working hard elsewhere. For example, a £1 bet on a share is the equivalent of buying (or selling) 100 real shares. On most shares our minimum Initial Margin Requirement (deposit) is 3-5% of the underlying value of the shares which means that you can take a bet in a share with as little as 1/30th of the money required to buy the actual real shares from a stock broker.

Rolling bets work by just taking the real price in the market and placing a very small spread around it. At the end of the day all open bets are ‘rolled’ over to tomorrow.

How Does Spread Betting Work?

Spread betting is an efficient alternative to traditional trading in the financial markets.
Not only is it more versatile, by allowing you to either go long (buy) or short (sell) a share, it is extremely cost effective, as you do not pay commission or fees. If you are a UK resident, your profits are Tax Free. You can also use Spread Betting as a hedging tool, to protect investments in an existing share portfolio.

The “spread” in the phrase Spread Betting refers to the Sell (Bid) and Buy (Offer) price quoted by a spread betting company. This price is calculated around the live (or the estimated future) market price of a financial product. For example, if the Daily FTSE is trading at 4729 our quote might be 4727-4730.

When you spread bet, you do not buy the stock or share but instead you make a bet as to which way you think the market or share-price will move. You can bet per penny or point movement – the amount you wish to bet is known as the “stake”, and can be as little as £1/€1/$1 per point or penny movement.

This diagram shows how your profit is calculated depending on whether you buy or sell the market, assuming your stake is £1:

Only small deposits are required to open a new position (as little as £10-£40 for a £1 bet depending on the market concerned). Once you have chosen the market on which you wish to bet, you can then bet the stake of your choice, which will represent your profit or loss per point movement in that market (each market has its own individual maximum allowable stake).

You can then bet £1/ $1 / €1 per point/tick/cent on the movement of spread prices that we quote. You can choose to bet that the market will rise, or alternatively, you can bet that it will fall. If you are right, you will make a profit of your stake multiplied by each point that the market moves in your favour. If you are wrong you will make a loss of your stake multiplied by each point that the market moves against you.

For this reason you must be aware that your losses can increase dramatically if the markets move substantially in the opposite direction to your bet (i.e. if you make an Up Bet in the FTSE 100 and instead of going up it goes down). All spread betting profits are recognised as the winnings of a bet, and are therefore free of Capital Gains and Income Tax in the UK.

Article Source: Capitalspreads.com