Spread Betting – How to trade online without owning the stocks
Spread betting might be favoured by some due to the fact that it is one of the most accessible forms of trading for traders that are not willing to risk too much capital. Here we will discuss exactly what spread betting is and the technology that makes it possible.
What Is Spread Betting?
For those who are familiar with CFD trading, the concept of spread betting may be easier to understand, as it works along the same principle that you don’t actually own a particular stock, but instead, you speculate on whether an asset will rise or fall. If you anticipate that the value of an asset will increase, you open a long position or buy; on the other hand, if you think that an asset will drop in value, you take a short position or sell. Put simply, when spread betting, you could make a profit based on anticipating the correct direction.
It is essential to determine your trading style before you jump into the deep end. Indeed, your trading style is very much related to your investment future and investor/trader profile. Some will want to day trade, i.e. on a single day, while others will prefer longer-term strategies and hold their positions for several months or years. There are a few strategies that you can approach spread betting with, including:
- Reversal: Identifying if the market is either bullish (will increase) or bearish (decrease) is essential to all investment strategies. A reversal spread betting strategy requires determining trends and when assets will change direction. Traders will open a spread bet opposite to the current trend.
- News-Based: Particularly important in our current changeable economic and geopolitical climate is keeping up to date with news when making trading decisions. It is extremely challenging to keep on top of the amount of information and decide what is credible or relevant to market movements. It takes some time to develop a strategy for assessing news and the market reaction and become very familiar with geopolitical, economic and social events.
- Shorting: This is considered a riskier strategy, where you predict that the asset may fall in value, take a short position, and place a sell bet. It is best to research how the markets work and use risk-management tools for a shorting strategy when spread betting.
- Trend Market: Using technical analysis is also vital for all traders and is necessary for trend market spread betting. Trend market spread betting is a popular medium-term strategy.
- Buy-and-hold: When spread betting taking a long position is an effective strategy. Buy and hold is successful when you buy an asset at a low price, make a prediction, and sell at a higher price. Keep in mind that if you predict incorrectly, you could make significant losses.
One reason for spread betting has grown in popularity comes down to its accessibility, but also because it is not subject to Capital Gains Tax or pay Stamp Duty in the United Kingdom. Do note that tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.
In order to mitigate your chances of making losses when spread betting, you need to also take advantage of the latest technology tools.
Technology for Spread Betting
All investors who are involved in the financial markets are familiar with the environment of traders with multiple screens on which they follow charts. These software programs are trading tools that allow you to position yourself on different stocks to buy or sell. In the past, technologies for trading were reserved for the elite. However, these tools are now accessible to everyone via trading platforms.
Trading platforms and software programs are now available on all devices, using an internet connection and combining all the tools needed to monitor the financial markets. The advantage of trading technologies and the latest platforms is that they gather all the information necessary for the trader to make decisions in one place.
The trading platforms are designed to meet the needs of both beginner and expert traders who want to benefit from the volatility of a market by spread betting or CFD trading easily from a phone or other device. It is important, however, to understand the risks of the stock and commodity markets. It is vital that a trader is educated adequately and carefully chooses a reliable trading platform validated by the local financial authorities.
The essential technologies you will need to set started are a computer, tablet or smartphone, an internet connection, and a trading platform. Thankfully, these technologies are already part of our daily life, so investing via a trading platform is very simple. It is now, therefore, incredibly accessible to trade different markets such as Forex, shares, indices and commodities. An adequate broker should always offer a selection of trading platforms, automatic trading, manual trading etc. Before you start with spread betting, it’s best to choose a platform you can trust, especially if you are a beginner. A profitable trading platform should allow you to open a demo account so that you can practice trading and perfect your skills before you start trading in the real market with your own funds.
The simplest way to get started with spread betting is by opening a live or demo account. Always do adequate research, keep up to date with the news and markets, and use a regulated broker. Spread betting is so risky that you might end up losing more money than you originally invested due to the nature of leveraged trading. To mitigate risk, make use of demo accounts and stop losses. The average trader might consider creating and sticking to a well-developed strategy while keeping his emotions out of the trading decisions.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.
Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.