With the growing interest in financial markets, particularly spread betting there is a marked increase in the number of people who are interested in spread betting. Spread betting is done with an aim to boost income. Traders can spread bet through spread betting firms.
Spread betting is a simple speculation on the future price of the underlying financial market. Spread betting is preferred over other forms of trading because of its advantages. Some of its benefits are:
- Leverage: Leverage enables a trader to earn potential profit for the same price move in the underlying market.
- No additional transaction costs: There is no further transaction costs as the cost of trading is fixed in the spread. This is more advantageous in small size trades.
- Hedging: Spread betting also provides the benefits of hedging.
- Tax free trading: There is no capital gain tax or income tax on the profits earned from spread betting.
There is innumerable spread betting firms out of which the trader has to choose which spread betting firm would be suitable to his style of trading. The choice of the appropriate spread betting firm is based on certain factors:
- Speed of trading: The fast moving and volatile market increases the speed of trading. Such speedy trading is only possible with the help of spread betting firms. The benefit of speedy trading is the trades are accepted automatically or within few seconds.
- Easy access to world markets: Spread betting firms give access to wide range of options including currencies, gold, indices and also international shares.
Spread betting firms also provide benefits to UK investors. UK investors have to open a foreign currency account when trading international stocks. But spread betting firms enable the UK investors to participate in these markets keeping their stakes denominated in sterling. Such trading also reduces the transaction costs of the investors. For example, spread betting firms allow trading the S & P 500 index and FTSE 100 can be done from the same account.
- Diverse markets: Spread betting firms widen its scope to many markets like sports, politics, house prices, tv and many more areas.
- Shorting: Spread betting firms enable the investors to speculate and trade in the direction they feel the market will move. If they think that the market will go down, they can speculate on it to go down. On the other hand, if they think that the price of a particular share will go up, they can spread bet on it to go up.
- Round the clock trading: Spread betting firms allow 24 hours trading. These firms allow trading in UK stocks after the London market has closed. This facilitates the trader to react to the news as and when it is released and to trade on that basis.
- The spread: Spread is the difference between the bid price and the ask price. The closure the spreads the lower the risk thereby resulting into quick and more profits.
- Available software: Most of the spread betting firms offer graphs, charts, news, real time data and many more to its traders to provide knowledge about the market movements and for easy trading. These services may be for free or a third party payment for the trader.
- Multiple accounts: An investor should have multiple spread betting accounts which will allow him to work out which spread betting platform is profitable and best for him. The benefit of having multiple accounts is he can easily switch from one account to another when the spread of one firm suddenly increases.
- Minimum account/bet size: Generally traders look for spread betting firms which allows low deposits and low bet sizes.
- Margin: Margin is the amount of money exposed in a open position. Generally 5-20% margin should be available in the account to cover the cost of trades heading in the wrong direction. This margin differs between products and firms.
- Special offers: Special offers are given to attract the customers. This special offer can be an introductory offer for signing up, depositing and trading with the spread betting firms, sign up bonuses, cash bonuses, etc.
- Demo accounts: Demo account allows traders to trade on a spread betting trading platform
In real time with virtual cash so that they can get grips how trading works.
All the spread betting firms are highly competitive and choosing one of them is a difficult task.