I’ve been in the spread betting industry for over 20 years and if I’d have been given a pound for every time I’d heard that statement, well, you know the rest.
Okay, let’s get some of the myths and stories you may have heard about this product out of the way. There have been people in the past that have made and lost huge sums of money from spread betting but often this was relative to their financial status and the figures reported in the papers were often inflated. Yes, spread betting can be risky, which is why every spread betting company puts a risk warning on every advert and website that you see. Spread betting isn’t suitable for everyone and so it’s important to understand the risks before you start. But like many things in life, with a disciplined approach spread betting can also be very rewarding and under current legislation (of course this can change) profits are completely free of capital gains tax.
If someone asked you to borrow some money to place a trade you would probably refuse. The same applies when you are spread betting, don’t bet with money you don’t have. Spread betting is a leveraged product, this means that you don’t have to put up the full value of your bet when you open a new position but instead you are asked for a percentage of the value (this percentage will vary depending on how volatile the spread betting company thinks your chosen market or stock will be). So what to do with the rest of the money that you don’t have to deposit in your spread betting account? Well the answer isn’t ‘buy or sell more so I can maximise my profits when the market moves in my favour’. This is probably the greatest mistake that new clients make and will often lead to a poor experience and potentially large losses. Always make sure that you have enough liquid funds to cover your position should the market move quickly against you.
I’m often asked whether spread betting is just for the wealthy or for those in the financial industry. The answer is no, not necessarily. Opening an account with a spread betting company takes only a few minutes and your first deposit can be as little as £100 and so if you are interested in the financial markets and are prepared to spend some time learning about how the markets work this can be a very accessible product for you. The firm I work for, IG Index, has a unique education program allowing new customers to bet in very small amounts whilst finding their way around our platforms and getting a better feel for how markets move.
The principles of spread betting are no different to other forms of trading; you are trying to exit a position at a price that is better than the price you entered. This is how you make a profit. How much profit you make will depend on how far the market has moved and how much you have bet (oh dear, there’s that word again). A loss will occur if your exit price is worse than your entry price and again the size of the loss will depend on the market movement and the size of your wager (there, changed it, feeling any better?)
So why do we use the term ‘bet’ rather than ‘trade’ if it makes people so uncomfortable? The fact is that in the UK, under current legislation, profits from all forms of betting are free of taxation and so by structuring these products as ‘bets’ rather than ‘trades’ spread betting clients are exempt from paying Capital Gains Tax on any profits that are made.
Let’s suppose you and a friend both decide to buy shares in a company called XYZ plc, he decides to use a traditional stock broker and you decide to use a spread betting company. The trade ends up being very successful and in two weeks you are both showing a handsome profit and so decide to close out your positions. Your profit is tax free, whereas his may be subject to capital gains tax. So answer me this, why does he class himself an investor and you a gambler?
Same company, same position, same profit, yet you pay no tax.
Isn’t it amazing how some people would rather pay away their hard earned profits just so they don’t have to use the ‘bet’ word?
My time in this amazing industry have been fantastic and when I think I’ve seen and heard it all something always comes along to surprise me. The last few years has seen some extraordinary advancement to the way that clients interact with the markets, the way the spread companies publish their prices and the vast amount of technical and fundamental tools that are now available to the retail market. Only a few years ago the idea that someone sitting at home could see the same information as a traders in the square mile would have been thought impossible but now not only can you get this information in real time on your PC but also on mobile devices allowing you to stay in touch with the markets whilst on the move.
Spread betting companies now offer thousands of markets to bet on, but the vast majority of business is transacted on less than 250. The major currency pairs, the FTSE100, Dow Jones, German Dax, Gold and Oil are favourites for spread bettors across the country. The reason for their popularity is that these markets are always liquid, sometimes volatile and have the most technical and fundamental research for clients to view. Combine low dealing costs with 24 hour opening and you have what many view as being the perfect markets for speculators and hedgers alike.
Spread betting offers a great deal of flexibility for retail and professional clients whether you are looking to position yourself, either as a hedge against another position you already have or as a new speculative one, for a long or short period of time in small or large size. Placing your bet is straightforward and can be made over the phone, online or using a mobile device and as technology changes so the spread betting companies will continue to innovate and improve client experiences.
Learning to trade is not something that happens overnight so don’t be tempted by expensive education courses offering get rich quick promises. Take your time and do your research before you start and always speak to those who have experience of the markets and the products on offer. Anyone claiming this is easy and that they have the key to success should be ignored; there are no answers as to why the markets move in the way they do. That said, you can dramatically improve your chances of success if you listen to those that have genuine advice, practice what they teach, take time to understand the markets you are trading and always remained disciplined.
I wish you the very best for your future trading.
Stuart Lane works for IG Group and has been in the spread betting industry since 1988. If you would like to speak to him about spread betting you can call him on his direct line 0207 573 0895 or email him at firstname.lastname@example.org.
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