Spread betting is a completely different ball game compared trading stock itself, however it is often seen as a better, safer and more rewarding alternative. The main benefit of spread betting as opposed to conventional forms of trading is that it allows you to make a profit on both rising and falling markets, along with the fact that you have the potential to return a large profit with very little capital. However, there’s plenty more to consider…
Tax, Commission and Stamp Duty
The main important difference between trading shares and spread betting is that you at no point actually, physically own the shares when you’re spread betting. Instead, you bet on how the price of the share will perform. This means that you’re not liable to pay capital gains tax, stock broker’s commission or any account fees on any profits you make, which means massive savings for investors. All profits made from spread betting are exempt from UK Capital Gains Tax under current UK law. This automatically saves you from having to part with a large percentage of your profits. As spread betting is a derivatives product (a product that’s value is based on, or derived from a traditional security, such as a bond, stock, an asset (such as a commodity) or a market index.) UK Stamp Duty doesn’t apply.
However it is always wise to check whether or not you are liable to pay tax on anything you make as taxation law is subject to change. You should also take into account your own individual taxation circumstances.
Trade Whenever You Want
One huge benefit of spread betting is the fact that it allows you to be active in your trading around the clock. Forex markets, that can found on sites such as www.etxcapital.co.uk, are open 24 hours a day, 5 days a week, giving you the opportunity to trade whenever it suits you. It’s important and useful for you to be able to access your account and trade whenever and wherever you are, this is almost essential due to the fact that stocks and trades can change in value/profitability in no time at all.
Profitable Going Both Ways
Spread betting is quite unique in the fact that it’s one of the few forms of trading that allows you to be profitable in falling markets. You are able to gain exposure to market movement regardless of which way it’s going. For example, if you believe the market will rise, you go long on the price (buy). Your profits will increase in line with any growth in that value, however your losses will also increase in line with any fall in price. If, on the other hand, you think the markets will drop you would go short on the price (sell). Your profits will rise along with any drop in value and your losses will increase with any growth.
With traditional trading, you only stand to return a profit on your trading decisions when you have bought the underlying asset and it then proceeds to go up in its fundamental value. However, spread betting gives you the ability to ‘sell’ these markets as well as ‘buy’ them, giving you the opportunity to turn a profit on falling share values, provided that you can correctly predict market movement. This is commonly known as ‘shorting’ and you can ‘short’ on virtually all markets available. Spread betting is fundamentally down to backing your own judgement on whether a market with rise or fall.
Trade on a Variety of Global Markets
Spread betting gives you the options to trade equities, assets such as commodities (like gold and oil), currencies on the Forex market, Indices such as the UK 100, which are among the most widely traded markets in the world (a great place to start if you’re new to trading) and even interest rates that you normally would not be able to trade on, without buying anything. You can choose from thousands of markets and even have the ability to trade from home on your computer, or on the go with a mobile or tablet device.
Even the best traders make mistakes and find that markets start to move against them. To manage the inevitable risks effectively, you can choose to employ a range of risk management tools. One such tool is a stop loss which can help to reduce the effect any unfavourable movement in the market. There are also various other tools at your disposal, such as limit orders, charting ranges and watch alerts, which alert you when your chosen market has reached your desired level.
Trading Using leverage
As spread betting is a leveraged product, you only need to deposit a small percentage of the full value of your position, without needing to fork out for the full value of that transaction as you would do trading stocks through a stockbroker, this is known as margin. This in turn means that the potential for profits/losses from your capital outlay is considerably greater than with traditional trading. This is undoubtedly one of the key advantages to spread betting.
For example, on many forex markets, you only need 1% of the value of your trade in order to place a spread bet. Therefore if you wanted to trade £200,000 on the EUR/USD currency pair, you would only have to deposit £2000, this is known as a margin deposit. This leveraged trading can give you access to markets that you may not have had access to if you were to actually trade stock. As a result your funds are not tied up in an individual trade which means you can put the rest of your capital to good use in other investments. As a result, your risk and reward potential is greatly magnified.