Why Compare Financial Spread Trading Accounts
Whether you’re trading in shares, futures or spread betting, brokers need to be paid for the services they provide. In many instruments, the broker portion comes from a percentage commission levied on the transaction, or alternative a flat fee for each order executed. This is often added to extra layers of cost, such as financing, interest and other associated expenses, which add to create a handicap against trading performance and in the process makes it more difficult to profit. In spread betting, the commission structure is slightly different, with components weighing in from several alternative directions.
The world of financial spread betting is crammed with different companies and providers, each competing for the interests and capital of new and existing traders. With such extensive competition out there, finding ways to differentiate between unique service offerings is becoming increasingly challenging. As a result, brokers compete on spread, trading platforms, range of markets, the extra features, they provide, for taking on new accounts. These incentives vary from broker to broker, and for traders who are prepared to research and compare different options it can be possible to maximise the benefits through trading with selected brokers.
Choose Your Broker Wisely
Legitimacy Of A Company
The first and most important reason to compare companies and to read up on the various different options available is the legitimacy factor. While, thankfully, the majority of spread betting brokers are all above board, you can never be too careful when trading online, particularly when you’re handing over real money. After all, you only have the broker’s word for it that the markets are moving in the way they appear before your eyes.
Comparing financial spread betting providers for legitimacy is actually a foundational step towards more in-depth comparisons, and you want to make sure you’re operating with a broker who has a track record and is managed and regulated properly. A good benchmark is to look for FCA regulation (an essential legal requirement for UK spread betting operators), and to consult the Internet for reviews and recommendations from past customers.
Range Of Markets To Spread Bet On
On a more everyday, practical note, it is important to compare spread betting providers because some offer different markets to others, and you may well find that your choice of markets is limited with some brokers. Ideally, you want to be able to trade on as many markets as possible. While you will generally stick to a few core markets that you understand and can easily research, it’s always better to have the option to expand your trading horizons than to be boxed in to specific markets, so comparing and contrasting the variety and extent of choice on offer is an important consideration – particularly if you’re looking to be involved in financial spread betting for the long term.
Cost Of Trading / Spreads
When choosing a spread betting account with a broker it is crucial to consider the cost of trading , the commissions paid by the spread of the trade (more on how brokers make money). In recent times the financial market has become very competitive as a lot of brokers offer very similar spreads. Some spread betting brokers offer fixed spreads while others offer variable at very tight spreads to each other.
Comparison tables are particularly useful here for visually highlighting the comparisons between pricing structures at different brokers, but there can be no real substitute for personal legwork in finding the cheapest provider at any one time. While this can take time, sourcing the absolute cheapest provider who also ticks the remaining boxes is a worthwhile investment that will pay dividends time and time again.
Another important point of comparison between spread betting brokers that traders often forget is the range of functionality offered by their trading platform. While most platforms carry the same basic functions, some are far more intuitive and investor-friendly than others, and getting a feel for the system that’s most suited to you can be an important help in choosing a spread trading broker.
Support / Customer Service
Finally, you want to try and get a feel for the level of customer support provided by a given company before signing up, to provide peace of mind should you ever experience any difficulties with their system or operation. A contact telephone and email for customer support is usually enough to satisfy that they actually have a support function, but some companies have a better reputation than others when it comes to helping out their customer base.
Why Is FCA Regulation Important?
Choosing a spread betting broker is fundamentally difficult, particularly for new traders who are yet to understand the importance of each aspect of the broker’s service. The market is buzzing with competition, all coming in from different angles – those that compete on price, for example, differ from those that compete on service or market selection, and settling on a practically effective and sensible choice for your broker involves an often necessarily drawn-out decision making process. But whatever you’re looking for in your spread betting broker, one constant remains – it is essential that you choose a broker that is regulated by the FCA.
What Is FCA Regulation?
The FCA, or the Financial Conduct Authority, is the body responsible for governing financial services in the UK, including trading and the markets. They are an organisation independent of the financial services industry, and have the power to enforce fair play and penalise those that fall foul of its guidelines. As a starting point, every UK broker is required by law to be regulated by the FCA, and those who choose otherwise are operating illegitimately. The one notable exception is brokers that are based offshore who offer spread betting services to UK customers, in which instance it is worthwhile checking the level of oversight their respective authority has, and the rigidity of its rules and regulations.
The FCA set rules for fair play in financial services that are aimed at ensuring vulnerable parties, i.e. you and me, get a good, fair deal from those offering financial services. For spread betting companies, this goes towards ensuring that they are giving a fair an accurate reflection of the markets, and that there is no foul play – essential in ensuring peace of mind and protecting the interests of traders.
Why Is It Important?
FCA regulation is more than just important to the industry – it is absolutely vital. While there are some vocal quarters opposed to the way in which the FCA conducts itself, in essence its mission and objectives fulfil a vital requirement. Time and time again, the financial services industry has proven itself to be rife with fraudsters and illegitimate, underhanded tactics, due in no small part to the massive profits that the markets can deliver. Even with FCA oversight, the number of brokers, and indeed individual traders that are caught out manipulating the markets to their own end is enough to convince anyone of the need for strong, independent third-party regulation.
In terms of choosing a regulated spread betting broker, FCA regulation guarantees that there is some cross-check against the broker’s business practices, which is designed to ensure fairness for you. In this sense, it is vital that the FCA are in place to ensure your broker is operating within the law, and is delivering a fair service. Without its input, the temptation to stray into dishonest and illegitimate practices would be ever-present in the industry, and would make spread betting, as with all trading forms, a much different beast altogether.
While FCA regulation doesn’t guarantee you’ve chosen the right broker for you, it does provide an important seal of approval that you’re dealing with a reputable provider – absolutely essential whenever you’re thinking about entrusting a third party with your hard earned capital.
How Spread Betting Companies Make Money
Spread betting has become big business for the brokers, with a number of organisations who solely exist to provide spread betting services. As a service that has distinct advantages for traders in terms of profitability, spread betting brokers also have a number of avenues through which they earn their money. The money-spinners for spread betting brokers can be largely broken down into three main areas.
The first, and most direct, way in which spread betting brokers make their money is through factoring in a spread to the odds they quote. If a spread betting broker is quoting a market at 99-101, the 2 points in the middle represent the profit portion that goes direct to the broker, with no further commissions or transaction costs to be borne. This builds-in the commission component for the broker, rather than imposing a percentage on the transaction, which allows traders to transparently see and compare the effective rate they’re paying to the broker in order to trade on their platform.
Continuing with the above example, a trader who decides to sell the above market at 99 will need to wait for the market to fall from 100 (i.e. the mid-point between the spreads, which would give rise to the figures quoted by the broker) to 98 in order to make 1 point in profit – that’s a 2 points favourable movement for the trader, but a 1 point profit. Thus in this instance, the broker would be up by 1 point, while the trader would get 1 times his original stake in return. This method of pricing commission into spreads between the odds quoted is the main method by which spread betting brokers generate revenue.
Another clever way in which spread betting companies can earn money is to take market positions in contrast to particular trades, opposing certain positions in the ‘real-life’ markets in order to double-capitalise on an errant trade. Of course, this can be a risky method of revenue generation, but by working on the model that most traders and most trades will lose (which invariably is the case), brokers can leverage their own capital spending power in order to deliver significant yields on top of their trading profits.
The third, but by no means least important method by which spread betting brokers can earn money is through banking the interest paid on trader deposits. Spread betting brokers don’t pay interest on client funds because they don’t have to, and as a result they sit on an absolute goldmine of interest. Particularly when client accounts are designed to bear high levels of interest, the cumulative total of deposits can often easily run into the tens of millions for brokers, which generates substantial revenues from interest payments alone. For the brokers, it’s essentially free money – a win/win situation for those that run our spread betting platforms.
Spread betting providers have devised a variety of strategies for making money from their clients, some directly and others indirectly, which when cumulated make spread betting a massively lucrative industry, and a highly-prized market in which countless new businesses have tried, and continue to try to break through.
Why Have Multiple Spread Betting Accounts?
When it comes to choosing a spread betting broker, it’s seldom an easy decision one way or another. The industry is so highly competitive that brokers are forced to practically bend over backwards in order to accommodate the needs of traders and differentiate from the crowd, and for traders everywhere, this has led to a more customer-focused market and better value, functionality and service across the board.
When it comes to weighing up the advantages and drawbacks of each different financial spread betting company, traders tend to think towards the end goal of signing up with one broker. In actual fact, it is possible and even advantageous to broaden your scope to multiple trading accounts, in order to reap the rewards of multiple different spread betting providers.
The Best of All Worlds
Opening multiple spread betting accounts is quite normal, and it’s a widespread practice amongst professional traders looking to get the most out of their trading capital. Spread betting brokers, by their nature of competing with one another in order to offer the best deal each bring something different to the table – whether that’s in the form of better spreads, improved trading resources and platforms, or the selection of markets on offer. By opening accounts with several brokers, you can effectively capitalise on the unique selling points of each, to bring a diversity of benefit that simply isn’t possible through trading a single account.
It is important to note that trading with multiple spread betting accounts isn’t frowned upon. While of course each broker would prefer you traded exclusively with them for reasons of competition, spreading your trading across different platforms is advantageous for the trader, and by proxy advantageous for the spread betting broker. If trading multiple accounts allows you to improve your trading fortunes, that’s good for the industry as a whole, and your continuing success will help improve the bottom line of each of your brokers.
How To Trade Multiple Accounts
While theoretically, trading multiple accounts allows you to reap the benefits of different trading platforms and brokerage services, the practicalities of managing multiple accounts can take some getting used to. When trading multiple accounts, the organisational burden of handling the logistics becomes more significant, with a greater emphasis on recording keeping and monitoring your open positions. Similarly, in spreading the risk and avoiding over-leveraging across the board, it’s crucial that you keep a close eye on each of your trading accounts, and rotate between them on a regular basis in order to ensure you’re fully on top of your entire portfolio. While this does require a bit more effort and input, the benefits can be significant, allowing you to cherry-pick the very best parts each broker has to offer.
Naturally when dealing in financial markets, brokers will look to hedge their exposure. As brokers have direct access to the markets, hedging is another way in which they can increase profits without passing these costs on to the traders, thus allowing them to remain competitive with the spreads. Trading in both derivatives and cash markets directly helps ensure a diversified exposure to minimise risk and allow low but more stable yields to be sought to help round out the broker’s share. Spread betting brokers earn their commission just like any other. This tends to work out as delivering more favourable terms to traders as compared to the costs of other forms of trading and investing, and allows traders to make gains from smaller market movements.
The relationship you have with your spread betting broker needs to be a solid one. Firstly, there needs to be trust sufficient for you to deposit your savings in the provider, and you must be sure that you’re trading on a level playing field in a fair and honest market. Furthermore, you need to pay for the service, and the difference between the cheapest and the most expensive firms can be significant.
Ultimately, finding a firm involves finding a satisfactory middle ground between each of these key considerations (one may consider opening multiple spread betting accounts). But with so many different providers to choose from, each with their own particular specialities and shortcomings, carrying out the comparison process is an essential step in landing yourself the best possible financial spread betting account.
Finding The Best Provider
When it comes to financial spread betting, or any forms of trading, your broker will play a vital role as it is them who will execute your transactions and orders and thus it is very important that your spread betting company executes your trades according to your working plan. The time you invest finding the best spread betting broker will definitely pay off in the end. A top spread betting firm should definitely execute your orders without interruption and delays. Once you find a firm you can trust you can definitely say you found the best spread betting company.
What Makes a Great Spread Betting Broker
As shown above, finding a top and reliable financial spread betting provider might take time and effort but it’s well worth the research to find a really good account. A reliable provider will save you a lot later and if you invest your time now it will play a vital role to protect yourself in the future. Trade only with the best and reputable spread betting brokers.