Whether you are a rookie investor who is looking to get into the stock market for the very first time or a an experienced risk taking trader, there are more than several reasons why you might want to examine and consider the benefits of learning the art of spread betting as an optional approach to traditional stock trading and purchases. Let us examine the benefits of spread betting:
1. The option to choose between a bull or bear approach
This is perhaps the most obvious advantage of using spread betting as it allows traders to make a profit from short positions which is essentially positioned towards betting on a market or individual shares to fall. This is particularly noteworthy as it lets investors profit from a decline instead of waiting for prices to reach a substantial low and purchase at this point.
As a result, traders can take both bullish and bearish trading stances in order to make profits on the rising and falling markets just as long they remember to close out their positions and book their profits at each stage of their trade.
2. Keeping more from gains
Key spread betting companies make their profits from the spread added to their principal market prices that are already part of the quotes they have already traded with. This ultimately means that unlike stockbrokers, you basically won’t need to pay for commission fees.
Although this may be subjected to alterations in the future, it is also presently the case that all profits made from spread betting are almost always exempted from stamp duty (available in the United Kingdom) and are free of both income and capital gains tax since spread betting is legally considered a form of gambling which allows you to keep a far more gains for yourself. It worth mentioning that the industry is presently regulated by the Financial Conduct Authority replaced the Financial Services Authority, instead of the Gambling Commission just recently.
3. Hedging your bets
If you bought shares in the traditional approach, you basically expect your portfolio to fall in the interim; you can better utilise spread betting in order to sell the equivalent value of the share and make profit as it decreases, possibly shielding the drop in value of your shareholding.
4. Utilising Margin
Since spread bets are trading products that basically operate on margins, you only need to deposit a small amount of the entire value that operate on margins, normally between 3-5 %.This means that you can use the remaining capital elsewhere to make additional profit that could help counter the overnight financing rate which is considered to be the only added cost involved in spread betting.
5. Choosing the risks
Another advantage of spread betting is that there is no need to make an upfront outlay to take full advantage of the movements in the markets. Whereas traditional stock purchases require traders to shoulder the entire cost beforehand. Although this allows you to capitalised the aforementioned cost to make other trades and more potential profits, you should be aware that the level of risk is basically the same if the company was to plummet and the value of its shares end up dropping to zero overnight. You are therefore, expected to cover the full cost and not just you initial deposit, assuming that you purchased a buy bet on the prediction that your shares will increase significantly.