Spread betting is a very powerful tool that give traders the ability to bet on the stock market indices such as the Dow Jones Industrial Average and FTSE 100. Moreover, spread betting is all but impossible to do with conventional brokers since it allows traders to take a strong position on economic trends instead of just focusing on the rare specific factors that affect the movement of the individual shares in the market.
Furthermore it represents a way of utilising international opportunities not including the purchase of share on overseas stock exchange. Another advantage is that traders can ‘short’ an index (betting on a fall), that is very practical in uncertain economic times.
There are several market indices, countries, covering regions, industries and sizes of companies. In the UK the FTSE 100 is the more popular choice although there are several others including the FTSE All-share, techMARK 100, and FTSE 250.
The US’ Dow Jones Index as well as other 50 plus indices there are several other countries that have their own respective indices such as Japan’s Nikkei 225, Germany’s Dax 30 and French CAC 40. Before considering betting on indices, it is very important to understand the relevant factors that might cause your preferred index to shift in one direction or the other.
The process of betting on an index is practically the same as with an individual share. As with other forms of spread betting, there are no extra dealing charges and profits are generally tax free. When betting on indices, it is crucial to be aware of the accompanying risks that is involved in spread betting. Indices can move quickly in response to economic movement or market sentiment, hence there are certain risks of running large losses if not properly monitored.
For this very reason it is therefore very important to set stop-losses. Stop-losses mean that setting up a lower limit to the index of your choosing which you are betting or set up an upper limit instead if you plan on going short instead. Stop-losses are devised to automatically close the bet once a certain point is reached to limit losses.
For a relatively small premium, you could take a sufficient guaranteed stop-loss to put an unlimited limit on liabilities should the market move against your favour. Guaranteed stop-losses are an optional tool and are normally selected as an optional extra when deciding to bet on indices. The ability to bet on the price of indices whether it is going up or down offers a broad range of opportunities which represents a valuable addition to an investor’s portfolio.
Advantages of Spread Betting on Indices
- Risks are better controlled with the use of stop-loss
- Stamp duty charges and capital gains tax are excluded upon payment of profits.
- Positions can be opened without the need to purchase full share price through the use of leverage.
- You can bet virtually anywhere and whenever you want even when the markets are closed.
- The continued use of existing share-trading knowledge from conventional trading