While we can’t guarantee you’ll be successful, we can promise you’ll find everything you need to know to develop and execute a successful and profitable spread betting strategy, and it’s worthwhile working section by section to ensure you’ve covered as much ground as possible before investing for real.
While there’s no substitute for experience, taking the time now to learn the fundamental theory underpinning financial spread betting will undoubtedly stand you in good stead, and improve your chances of building a successful trading portfolio.
What Is Spread Betting?
If you’ve found your way to this tutorial, you probably already have a basic understanding of what financial spread betting is and how it works. While on the face of things, spread betting appears to be a comparatively simple style of investing, online forums are littered with stories of significant failures with spread betting, such are the dangers of underestimating its impact.
There have been countless volumes published from analysts, traders and amateur investors alike looking into the finer points of spread betting. With that in mind, getting a broad and comprehensive understanding of how the mechanisms of spread betting work is essential for anyone looking to build a successful trading career.
Spread Betting Defined
Financial spread betting is the process of trading ON markets, rather than trading IN markets. A financial spread trade is essentially nothing more than a bet (hence the terminology of spread ‘betting’), or perhaps more accurately a contract made with a spread betting broker on the future movement of an underlying market or index as contrasted with today’s prices.
Traders pick a direction of market movement – either up or down, known as ‘buying’ and ‘selling’ – and place a stake per point on the trade. For every 1 point the market rises beyond the buy price in ‘long’ trades (i.e. those trades that predict a rise in the market), the trader earns an additional multiple of their stake. For every 1 point that moves against the trader however, his liability increases by an additional multiple, thus the liability of a particular trade isn’t limited to the amount of the original stake.
This process of adding and subtracting multiples is primarily what attracts traders to invest in spread betting. While spread betting is in practice quite distinct from gambling, the returns that can be afforded by spread betting are easily comparable, thanks to this multiplying effect – known as ‘leverage’.
Leverage is arguably the most central feature of spread betting, and the one highlight that makes it so popular. Because markets can move by a wide range of points over the space of a day, immediate returns can run into the hundreds of percent, and despite the comparatively massive risk profile, these rewards are still hard to beat elsewhere.
Who Can Spread Bet?
Spread betting is perhaps most closely associated with individual traders, and with those looking to manage their own assets to generate a better return. As an individual trader, the options for returns from more secure types of investment such as bank deposits and share dealing have plummeted, as a result of tighter financial and economic conditions. This has led to savings rates of just a couple of percent, and in any event covering the impact of inflation on savings and investments has become increasingly more difficult.
With spread betting, individual investors are finding they are able to generate a far more significant return, albeit at a greater risk than many alternative investment styles. Even managing a yield of 10% over the course of a year is sufficient to provide a market-beating rate of return, and with the hefty leverage portions built in to spread betting transactions, this is a more than achieveable goal.
Aside from private individuals, spread betting is also becoming a more important tool for trading funds, as a means of delivering an additional degree of flexibility to their portfolios and allowing for cost-effective returns on client investment. While the risks of spread betting resign it to being a marginal player in the world of professional investment, it is nevertheless present as part of diversified portfolio management, and it is becoming an increasingly widely used aspect of the investment industry.
Why Choose Financial Spread Betting?
Private individuals and investment funds trade spread betting for slightly different reasons, but they are united in their interest in highly leveraged returns. While for some funds, justifying the risks of spread betting en-masse would prove a difficult task, they are able to utilize the high, cost-effect leverage afforded by spread betting in order to generate greater returns over shorter periods of time. With other investment types proving increasingly difficult to squeeze a yield, and the need for enhanced flexibility to hedge positions and guard against unexpected market turns, spread betting is proving to be an increasingly worthwhile tool for professional investors.
Why Spread Bet?
Smaller, individual investors are also turning to spread betting in full appreciation of the risks and difficulties it poses, simply because it offers the opportunity to make their money work harder. Instead of accepting small incremental gains over weeks or even months, investors are now demanding instant profits and high, inherent leverage which can save on financing costs and deliver an unbeatable return over a much shorter time span. Regardless of which camp you find yourself in, and the precise reasons you’re interested in spread betting as opposed to other financial trading methods, rest assured that you are in good company, with a growing body of private and organizational investors seizing the opportunities spread betting can provide.