« Tax Forms To Download For Federal Income Tax Filing 2010, 2011 | Home | Quick Cash With Spread Betting »
Playing The Market With Finanacial Spread Betting
By Mike | September 2, 2010
In the decades since the founder of IG Index hit upon the idea of trading on the price of a commodity and not the actual commodity itself, spread betting has allowed individual investors access to markets previously only accessible to the institutions. The spread betting market is relatively easy to understand and is perhaps the cheapest option for anyone who likes the idea of playing the markets for profit.
Spread betting provides one of the simpler and potentially very rewarding starting points for any budding trader.It’s a marginal activity, meaning that the bets themselves don’t have to be huge to make a lot of money.If the share price movement (the spread) for a firm is punted out at 351p to 352p, but you think the share will end up higher, you could buy at £100 per penny movement at 352p. If the firm ends up at say 360p, you win £800. Equally, if it ends the day down two points from the buy price at 350p, you lose £200. However, to generate the same potential return by buying shares through investment funds you’d have to part with about £35,200.
So financial spread betting is a gamble, and although you may “trade” instead of simply laying a bet and once the bet is live you “hold a position”, the reality of spread betting is based on the same principles as ordinary gambling – never bet more than you can afford to lose.However, because the transaction is a bet and not a trade in the strictest sense, any profits are free from UK capital gains tax and income tax and you are also free from stamp duty.The attraction of spending relatively small sums for a large exposure comes with the risk of also running up huge losses. With some companies requiring deposits from as little as 3% of the equivalent direct investment value, it only needs a slight negative share price movement to generate huge losses. “Stop loss” triggers can limit those losses, however you still have to pay.
Topics: Investing |
Comments
You must be logged in to post a comment.