Traders who are interested in investing in the global financing market but is limited to their small funds can actually do more with less. Spread betting is the best alternative as it lets traders gain access to a wide array of options including markets and instruments which are inexpensive for the novice trader looking for a break to start one’s business.
With spread betting, the novice traders are given the chance to decide whether a financial instrument, market index, share price or even a foreign exchange rate will rise or fall. Upon that careful prediction, traders shall place their bet accordingly wherein all instruments have a selling price and a purchasing price. The distinction between the two is known as the ‘spread’ (pip) and let say for example the selling price is 99 therefore it follows that the but price is 100 whereas the spread is 1 pip.
If the spread is fixed, the price is expected to increase by two pips in order to profit so that the narrower the spread becomes, the better the chances for trade to profit. If the spread is variable, it is very likely that traders will require a greater change in order to make profits as the CFD/SB provider could possibly change depending on the condition of the market.
When making a bet, it is imperative to know that the CFD/SB is providing a fixed spread or a variable spread. The peculiarity between the two is very essential as it affects the outlook of profitability.
Fixed spreads are set and are basically static irrespective of the condition of the markets. This means that options are better provided as this allows certain trades to be given some form assurance.
At times of the increased volatility in the market, there is actually a potential to make greater profits. In times of quit markets, the opposite is true as with variable spreads which gives traders the advantage over fixed spreads.
Variable spreads have better leverage giving the best possible prices at any specific moment in time. However, when the market is volatile such becomes broader making it harder for traders to profit. During, quiet times when they become narrow resulting in much better terms than fixed spreads.
Whether the spread chosen be fixed or variable, will depend on the type of trader. As a day trader, there is a big probability that fixed spreads will best suit them as they are more advantageous, predictable and independent of market conditions. However, if a given trader prefers a longer term basis, hence, variable spreads are a better choice for this kind of trading scheme allows the trader to make trades during times when the spreads are constricted, giving a much better chance of profit.