I think most investors have got financial spread betting all wrong. They think it’s a tax-free trading toy for people who can afford to lose a lot of money (which they probably will). I consider financial spread betting as a cost-effective, albeit high risk way to establish speculative positions in many companies using very low starting capital.

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Low cost spread betting is both a good way to gain real-time experience of trading with real money and to understand the basic principles of protecting your capital rather than simply making profits. Most spread betting brokers will let you set up an account for as little as £10 as an initial deposit and many will offer you low-cost spread betting and promotional packages for new clients. These are incredibly good ways to gain a cheap and low-risk entry into spread betting and most popular brokers will offer tight spreads on several markets which will also limit the need to have a large deposit.

Starting with the offers, some brokers such as ETX Capital currently offer up to £250 cash back on any losses that you incur in the first ten days of trading. This essentially allows new traders to make absolutely risk free profits up to this limit and is the cheapest spread betting available during this period. Similarly, many brokers offer a demo trading account which really is the cheapest and nearest that you can get to a real trading experience. If you are looking to spread bet but want a more authentic experience IGindex offer a Tradesense introductory package for new spread betters. Not only does this provide a good source of education into spread betting but allows you to trade from as little as 10p per point.

Spread betting can be made cheaper and lower cost by trading markets with a tighter spread. This means that the broker does not make such a large commission between the buying and selling price and will ultimately give you an entry into the market which is closer to becoming profitable. One of the problems of trading some of the more exotic currency pairs is that they tend to have very wide spreads. This will result in a market entry which is several points away from break even from the start. Obviously, starting with a negative account will mean that your available capital has to be this much more to absorb this position and is certainly not a cheap spread betting option.

Looking for spreads of only 1pip or less (IG Index advertises some markets with just a 0.8 pip spread) will cost you less to enter the trade. Generally, most brokers will offer several currencies, including the EUR/USD and perhaps the FTSE 100 Index as standard 1pip spread markets. These are particularly good to trade because their liquidity also means that you are rarely likely to become trapped in a trade. Furthermore, the currencies which tend to have large spreads do so because they are the most volatile, in terms of keeping to low-cost spread betting these market have the potential to wipe out small accounts or at least test your deposit with the large stops required.

Risk management is an ideal way to practice cheap spread betting. By using sensible stops you can limit your losses and develop a trading style which doesn’t risk blowing your account on each trade. The idea ratio of risk is said to be around 2-3% risk on each trade and clearly this an ideal situation for beginners and can be applied effectively with the IG Index Tradesense package mentioned above. Even the smallest accounts can trade cheaply and easily with low stakes, low spreads and sensible stop-losses.