The persistent refusal of the Chancellor Gordon Brown in order to make any promise to reform the Stamp Duty Tax on the share transactions – 0.5 cent highest in Europe – has also played large part in remarkable growth in the popularity of CFDs & spread betting.
As, unlike the conventional instruments, CFDs & spread bets don’t confer ownership of underlying asset – the traders buy or else sell price movement in an underlying equity without taking any delivery of that – neither is the subject to stamp duty. Because spread betting falls in gaming laws, it is exempt from the Capital Gains Tax.
Other key demand of the spread betting is, as margin product, it allows gearing up all their investments. Because, as the margin product, some traders can potentially lose multiple of their first stake, spread betting is suggested for use just by the professionals, day traders as well as an experienced investors.
But when there are some risks attached to the spread betting, then there are different tools available – like guaranteed stop losses, which will help to manage the risk by inputting to system parameters in order to alert the traders to specify the price movements.
One more reason for recent growth in popularity of the spread betting is attributed to a fact that, additionally speculating on an underlying equity, the investors will trade on the different indices. Indeed, the spread betting allows traders to profit from up & down movements on various financial markets, no matter whether indices, an individual shares, or else commodities, like gold or else crude oil.
Not like the fixed odds betting, in spread, betting traders will not risk some amount for each bet, also there is not any fixed profit and loss.
That is just because an profit and loss on financial spread-bet is open as a trader is betting stake – generally pounds for each point – on direction of a market.
Example, trader may expect FTSE 100 index to increase and so choose to buy that at £2 per point by using spread bet. In case trader bought FTSE 100 index just at 4950, then risking £2 per point, and after that sold that when it is rallied 50-points to 5000, the profit will be £100. However if an index is moved lower & trader subsequently has sold all his bet at 4925 in order to take the loss, then he will lose £50.