Edge Your Bets With Financial Spread Betting

By Andy McDowd | July 9, 2009

Financial spread betting can take a great amount of the risk out of trading and good money can be made. This is a cost effective and tax free (in the UK) way of alternative share trading. It is a method which is used online where the trader is able to speculate without the assistance of a stockbroker.

This is a completely new way of participating in movements on the stock market without having to pay commission to a stock broker, and thereby making larger profits. The actually bet is placed on whether or not share prices will increase or drop.

The “spread” refers to the “Sell/bid or Buy/offer price. These prices are calculated based by adding more points to the live market price of the product (financial) and this is the estimated future price. This price is quoted by the spread betting company. An example of this is if the Daily FTSE trades at 4729, then the company will quote figures of say 4727 – 4731 and the trader places a bet on this price.

To open a new position in the market a very small deposit is required, generally about dollar, euro, pound10 – 40. Each bet is on each point or tick in which the market moves, either up or down. The stake is usually 1 on each point of movement and will represent either profit or loss.

Each financial market has its own minimum and maximum wager per tick. If the wager is placed on the market dropping and increases the spread better loses their wager, if it moves in the opposite direction where he predicted it would go, he makes a profit. It is very important that the spread better understand losses, as well as profits can be substantial. The loss or profit is calculated on the wager multiplied by the amount of points the market drops or increases.

It is very important that the trader understands that in as much as profits can be made, losses can also be incurred and it is not only a case of losing the wager amount, it is multiplied.

Because spread betting is considered to be a “bet” in the UK, and profits from this system of wagering do not have to be declared to the Tax Man. They are neither subject to Income or Capital gains tax.

New spread betters should always practice with a demo account first to see if they are able to grasp the concept. Learning about spread betting first without any financial risk is the best approach. The demo account will emulate precisely how a live account will react and it comes with a guide for beginners.

Being exposed to the spread betting system with no risk involved is the best way to learn all about it. Only once the trader is confident that they have the concept firmly in their grasp should they consider opening a new position in a live account. Make sure the company you choose provides a demo account and beginners guide!

Before engaging in Financial Spread Betting Strategies, check out the authors blog on ODL Markets Trading

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