How does financial spread betting works? The basics and workings of spread betting are quite straightforward and you should be able to grasp the principles in a very short time. In fact, I’d say that some things that we do in our 9 to 5 hour jobs are much more complex than the concepts of spread betting or CFDs yet we do not hesitate to investigate.

Suppose we have £5k available risk capital. Then, one may only have to deposit £500 (based on a gearing ratio of 10:1). This is usually referred to as utilising leverage to make your capital work harder for you. You can leave the rest of the monies in a bank account accumulating interest. The other key advantage of contracts for differences and spread betting is that you can bet on an instrument falling in value just as simply as one rising in value.

We are often told that spread betting is open to unlimited liability but spread betting providers these days offer a host of risk management tools to control your downside. Stops, limit orders, OCO orders, conditional orders and limit risk account should all help to provide some peace of mind when you can be in front of a monitor. And what with most spread betting providers offering mobile trading platforms these days, there is really no excuse for not being able to monitor your account.

Thirdly, spread betting and CFDs allow you to go short and profit from a market declining in value. Why should we be limited to only betting or speculating that things will go up? Often a stock drops faster than it rises as fear sets in and everyone runs for the door/throws in the towel. Why shouldn’t we be able to go short on say high street retailers who are having a rough time of it?

There is a point at which the financing cost of owning a CFD or spreadbet becomes unattractive compared to that of owning the underlying security. Investors and spread traders should be careful to calculate their long term financing obligations before the cost of owning a spreadbet position outweighs the cost of owning the underlying. Assuming interest rate is charged at 4.5% per annum CFD provider, you can hold a position for approximately 90 days and pay less than the stamp duty!

Fourthly, CFDs are free from Stamp duty. And financial spread bets are free from ALL tax, inclusive Capital Gains. When I first started dealing with shares back in 2004 my 1st yr dealing costs were £616. and realised net profits of £702. When I looked into CFDs I worked out that I would have saved over £300 in costs, through combination of no dealing commission and paying interest on the CFDs. So from then on I stopped trading thru normal shares and went into CFDs and spread bets for a while, initially making good money, before getting too clever and ceding some profits back to the market.

Just a thought as spread bets are tax free but CFDs do count towards CGT. But with good money-management you could invest part funds in high interest account and use the rest for trading. So just take appropriate to do proper research and take the time to understand the instruments you are trading.

And remember utilised correctly, financial spread betting and CFDs are an important tool available to private investors and traders. The majority of traders lose because they are not disciplined and either abuse leverage or keep running their losses. The brokers and spread betting platforms are happy as you long as you are trading as that way they get their fees!

Learning to Trade: Financial Spread Betting

A great way to learn how to trade the stock markets is to risk money you can easily afford to lose. I ‘paper traded’ forex years ago, and found that unless the money was ‘real’, it had an effect on your decision making.

So now I’ve been trying my hand at spread betting. The reason lots of people have heard horror stories with spread betting is that many people tend to dive in without really knowing what they are doing and end up losing their money. There is a statistic thrown around that only 20% of people are successful spread betting in the long run.

In terms of your learning you still need to use the same strategy as you would with buying the actual shares. But instead you are betting on the price movement. As I said you can bet up or down which is long or short.

There are several companies you can use. IG Index and CMC Markets are well known but I think their spread is a little larger than other companies like Capital Spreads. You need to just google spread betting. You can probably find more information than I have given you obviously.

Sometimes you do encounter issues with spread betting – for instance I cannot trade a particular security because its market cap is too small for IG Index . I’m also occasionally unable to trade on certain shares with IG as they apparently limit their exposure to certain shares, so I cannot buy until someone else sells.

For instance I was confident enough with Gulf Keystone to trade with stops at £50/point. Last week I closed a trade in GKP (Gulf Keystone), taking a bit of profit on some earlier news. When I tried to get back on board, it was ‘closing trades only’ online. Really, really hacked off. £2800 would have been a nice little bonus to wake up to this morning. But, I’ve not lost any – just not made some. Still a bit gutting though! Live and learn.

For my longer term trades (i.e. weeks/months) I use larger size trades. I have trailed my stops manually to lock in profit. I have also used Capital Spreads and Cantor Index….both seem ok but I believe that with all spread betting sites you sometimes tent to be re-quoted especially in fast moving markets.

Just one parting warning call with spread betting, make sure you have sufficient capital in your account as otherwise if your bet goes against you the spreadbetting company will close out your deal.

Spread betting and CFDs are revolutionary products that allow risk management strategies unavailable with any other trading instruments, although each broker varies in this regard so you need to use the appropriate broker for the type of strategy you are looking to achieve.

So how much do Spread Bets cost in Dealing Charges?

Dealing charges are nil but you may pay a little extra in the “buy-sell spread”.

For shares there are two types of bets; daily or quarterly. Daily spreadbets can be closed at any time or carried forward, with a daily financing fee being charged for rolling a position overnight. At the moment this is based on approx 4% p.a, so £1000 trade costs approx 11p per day. For quarterly contracts there is no financing fee as this is built into the buy-sell spread price.

Just looked on my system to give you an example:

GSK cash bet – 1033.72 sell or 1035.78 buy
GSK Quarterly – 1037.21 sell or 1040.83 buy

The live market price quote is 1034 to 1035.5

There are also no stamp duty or commissions with spreadbet. For short term trades there are big savings to be made, especially on lower value trades (say below £1000). In fact if you are dealing in shares, one option at your disposal would be to consider financial spread betting as this is currently treated as gambling and therefore non-taxable.

Why is the time limit in spread betting generally not longer than a quarter? For example, if you wanted to bet on the currency, why can’t you do it over a year or more?

There are various lengths of bets. If you get into daily betting (not advised if you are just starting out), you would roll over a bet to the next day and pay interest. You can bet on currencies for a year just by leaving your bets running. The cost of financing is minimal compared to the value of the spreadbet. For example trading GBPUSD at current level approx 1.45 is worth £14500 and costs 1p per day on a ‘long/buy’ position. With shares you will find that the quarterly bets are better value than rolling daily bets if you hold the position for more than a few weeks or months. Spreadbetting companies based in the UK also offer bets on certain USA stocks (major companies), it’s quite limited though, also the US exchanges are covered as of course is forex.

The problem with closing a bet one day and re-opening the spreadbet manually the next day is two-fold:

1. You are paying for the buy-sell spread twice
2. The market often spikes in the morning so you cannot get back in at the same price you got out the night before!

As always the risk with spread betting is if you get it wrong you can lose a lot more than your original stake. If you get it right you can make a fortune too. You can always start off doing very small trades, using minimum bets and starting with a liquid FTSE spread betting stock like Vodafone (currently trading at 167.75p) where you can do a bet at at £1 per point and your max loss would be £167 plus financing costs of approx 1p per day. Note that there is no stamp duty when spreadbetting – only when buying UK shares.

Note: Apart from the occasional day trade, most of my spreadbets consist of quarterly plays. A few with June expiry but mostly March. I cease opening current-quarter bets about 2 months into the quarter. Most are fitted with automated trailing stops. Sometimes (like about now on a Friday) I will temporarily tighten the stop loss settings for the weekend (accepting the risk of getting stopped out of one or two on the Monday morning). And there are other occasions where I push the stops up tight – getting myself stopped out now and then. So quite a few don’t run continuously towards the eventual expiry date without being reopened along the way. Among the March ones that stay the course, some I will roll over into the next quarter, others will lapse on the expiry date. A lot of my quarterlies get closed long before expiry (especially losing ones of course).

You have reached a new spreadbetting guide aimed to help educate retail investors and trading thinking about trading in spreadbetting.

Increasingly, we are seeing more and more people who want to generate an income by spreadbetting on the stock market, either as a new career or as a lucrative hobby.

Traditionally, for most investors in stocks and shares, a financial crisis, like that which has been plaguing the eurozone for most of 2010, is something to be feared. What will happen to your stocks or unit trust investments when even whole economies, like those of Greece, Ireland and Spain are reeling under the burden of a debt crisis that has still to play itself out? It all seems quite frightening, but all this market volatility provides ample opportunities for canny traders, especially those with financial spread betting accounts.

Spread betting offers traders the opportunity to speculate on a whole range of markets including indices, currency pairs, commodities and individual shares. Spreadbetting is a highly flexible alternative to traditional stock trading by allowing traders to profit from both rising and falling markets. What’s more all gains are tax free which is particularly enticing in the current economic climate when tax increases seem to be the order of the day.

Workings of Spread Betting

Spread betting is all about working out for instance where a share market stock or index will finish the day compared with where it opened. It is not limited to stocks and indices either; you can spreadbet on shifts in the prices of cattle, cocoa, hogs, oil, gold, oats, soya beans, lumber and heating oil…etc.

It is important that you understand the key features of spreadbetting before you decide whether or not to risk your money. Spreadbetting is traded on margin which in practice means that you do not have to pay the full market price of the underlying shares. You only have to put sufficient funds in your trading account to cover the margin to open the position. Therefore, you might only need to deposit £1,000 as initial margin to enter into spread trading positions up to a value, of say, £10,000. If your speculative investment rises to £12,000 – which amounts to a 20% rise in the value of your position – you will in fact stand to make a 200% return on your investment, as you only deposited £1,000 initially.

Spread Betting: The Individual Investor’s Most Powerful Profit-Making Tool

Tax efficient ways to make money…

Spread trading is a capital efficient investment product that allows you to speculate on the stock markets. You can also utilise spreadbetting to diversify or hedge your portfolio, because spread bets require only a margin deposit to open a trade as opposed to the full cost of the underlying market exposure. You can release capital tied up in shares positions or open new positions that are long or short.

Go Long or Short

An important feature of spreadbetting is that you can enter both ‘long’ or ‘short’ trades. A “long” position involves purchasing the contracts and selling them again at a later stage, hopefully after the price has risen. So in essence, ‘long’ positions make money in a rising market.

A ‘short’ trade is the opposite – selling contracts first and buying them back later. This may sound strange but in practice you can make money in the markets by either ‘buying low and selling higher’ or by ‘selling high and buying lower’. If you manage to buy them back at a lower price, you will make money. Therefore ‘short’ trades make money in a falling market.

Spreadbets are very powerful trading tools that will benefit active traders and investors who are looking to optimise their cash flow and benefit disproportionately from small market movements. Equally, spreadbetting can also be utilised as a cost-effective hedging mechanism that allows you to exploit market movement whilst benefiting from corporate actions. Short positions allow you to make money even in a falling market.

Remember: With spread betting you can potentially put forward small initial stakes that can yield big, quick returns but also risk potentially large losses. We often stumble across advertisements from trading courses teaching beginners how to make bucket loads of money through trading via spread betting. What these courses don’t say is that traders require a great deal of expertise to make the potential high returns.

Remember: Telling a novice to dive into CFDs and spreadbetting without taking the time to educate oneself about the product is like telling a first year infant to look into the complete works of Shakespeare. Don’t run before you can walk!

The moral? Learn as much as you can before you go in for spread betting, then learn some more…

The Spread betting portal is aiming to be a reliable source for financial spread betting information. Here you can find spread betting reviews, tips and strategies and the financial spread betting univesity is coming soon.

Whether you’re new to financial spread betting or you are looking for new ways to increase your earnings, you’ve come to the right place.

Trading currencies is nice and all, but why not expend your capabilities and make it more intersting with oil, gold, silver, gas and many many more?

Don’t risk it all when you can simply place a bet and see your money doubles in matter of seconds, you don’t have to wait for that to happen – it’s automatic!

This is financial spread betting and you’re almost there. The spread betting portal offers a veriaty of spread betting companies where you can bet and make money from. Don’t worry all the companies listed on the spread betting portal or advertised here are legit and licensed.

If you have any unsolved issue with a spread betting company, contact us and we’ll make sure to publish it here so people will stay away from it.

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Instead of risking a large sum of money for small profit or big lost, a player can now risk a small amount of money for the oppurtunity of turning it to a large sum of money without the need to actually buy shares of the stock and guess what? it’s tax free!

So whether you are Going short or going long when placing your bets on financial spreads, considering the risk involved you are making a pretty good deal.

The best thing about it is that you’re not limited to currency exchange like stock trade forex or company shares like the stock market, you can bet on almost anything including the oil price, the gold price the gas price and even the sugar price.

It’s fairly new and it’s exciting! Better than anything you’d known so far and the best part about it is that it’s easy!