The Advantages of Spread Betting

Spread betting is the practise of speculating on the movement of a financial market or individual financial instruments, such as shares, indices or currencies. Spread betting is a derivative, in other words speculators do not own a stake in the market or the financial instruments they are speculating on. Profits are the result of a correctly anticipated market/financial instrument price movement; losses are sustained if prices move in the opposite direction. Access to Different Financial Markets One of the advantages of spread betting relates to the access to different financial markets. Some commonly traded asset classes are indices, the foreign currency exchange (forex), shares, commodities and bonds/STIRS. Each of these asset classes is made up from a wide range of instruments. Forex, for example, comprises a large number of currency pairs, which include the US Dollar and the British Pound, the Euro and the Japanese Yen or the Australian and Canadian Dollars. Opportunities to speculate are as broad as the markets themselves. Tax AdvantageSpread betting does not incur capital gains tax on profits*. google_ad_client = "pub-2311940475806896"; /* 300x250, created 1/6/11 */ google_ad_slot = "0098904308"; google_ad_width = 300; google_ad_height = 250; There is no capital gains tax or stamp duty levied on potential profits. This is mainly due to the fact that spread betting is classed as a bet for tax purposes. Speculation does not entail actual ownership of the underlying financial instrument, as would be the case with normal stocks and share trading. Going Long; Going Short Spread betting allows for both long and short positions. Going long means you open a position in the belief that the underlying market will rise over a given period of time. Your initial deposit, which is leveraged, commands a position in the market that increases in value as the underlying price rises. The potential profit is a function of the difference between your opening and closing positions. Going short, on the other hand, means you speculate that a market will fall. Essentially, going short, which again uses leverage to magnify your market position, entails predicting that the market will fall. As spread betting works by speculating on price movements, going short or long is executed by a system of points. Each underlying market price movement translates into a point, either up or down; spread betting works by this points system and you can make a profit (or a loss) on both a falling and a rising market. Stop Orders The risk of incurring losses can be addressed by the use of stop orders. A stop order is an automatic trigger that closes your market position at a predefined level, although note that not all stop losses are guaranteed. Companies like FinancialSpreads.com and IG Index often let you add both stop orders and, the slightly more expensive, guaranteed stop orders. Spread betting is a leveraged investment option, it involves a high degree of risk to your funds and you can lose more than your initial deposit. It may not be suitable for all investors. Before you start trading, make sure that you are fully aware of the risks. Make sure that you only speculate with money that you can afford to lose. Seek independent financial advice if required. * Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK

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