Financial spread betting is a great option for small investors. It is simple to understand too. When placing a normal financial bet, you will buy the underlying asset at the offer price when you think that it will rise. If you believe that it will fall, you’ll sell the asset at the bid price.
In spread betting, you will place a bet with a firm specialising in spread betting such as CMC Markets. The company will make a wise guess on where it thinks an asset will stand in future. You will then place a bet on whether the prediction they have made will be higher or lower. Although you do not own the underlying asset in this kind of betting, you will benefit from its movement.
Basic terms to remember
Before taking part in spread betting, you need to understand a variety of terms commonly used. These include ‘spread’ which refers to the difference between the price that you would buy and the price that you would sell. Another important term is ‘market spread’ which is the spread that you would pay if you decide to buy and sell the shares. The ‘sell price’ is commonly known as the ‘bid price’ while the buy price is called the ‘offer price.’
Spread betting is good for small investors
Spread betting is perfect for small investors since a small movement in the price of the underlying asset could lead to a big return. You can also use the bets to hedge out your portfolio. For instance, if you own shares in a company and fear that their value will fall, you will use spread betting to offset any potential losses.
Spread betting firms will offer participants a lot of options. They quote prices on multiple stock market shares, individual shares, commodities and currencies. These include overseas shares listed on credible exchanges, stock market indices such as UK FTSE 100 and German Dax 30. You can also place bets on stock market sectors like banks and real estate.
How your money moves in the market
In spread betting, customers bet their money ‘per point.’ A point refers to the movement in an index or share. For example, a price movement from 500p to 505p is a movement of five points. The movement could also be half a point if the bet involves an index. It’s important to note that when you are placing a bet, you are trading the stake on every point that moves. Since you are not betting on a fixed amount, your outcome will change if the market sentiment changes.
Why you should participate in spread betting
Spread betting is a good way to make money because it’s pretty straight forward. Everyone can understand the process of entering and exiting bets. Here are other ways in which you could benefit:
- The money that you make will not be taxed
- You will have access to a wide range of markets to place bets on
- Since there is no stamp duty or commissions in spread betting, the transaction costs are low.
- Financial spread betting is sophisticated. Participants use powerful tools such as real-time charts, instrument prices and risk management
- The betting offers extreme leverage
Trading platform features
Spread betting firms offer customers a trading platform when they open an account. The application will allow you to open, close and control all positions from anywhere. Most firms provide trading platforms with similar features including multiple device, which allows participants to use a tablet, mobile or desktop. They also have a market search feature that you could use to look for the commodity you want to trade, and live prices that show actual market movements. Other important features are charting tools with analysis indicators and watch lists used to keep track of the markets that customers are interested in.
Financial betting is very profitable. You need to understand the process as well as reasons why you should do it. When placing spread bets, consider their timelines. Some bets finish the day you place them and others conclude at the end of a quarter cycle. When looking for a market to place a spread bet on, you will notice that a variety of timelines are provided. Every contract will have a different spread because addition fee is charged for running bets with long expiry dates.