8 Advantages of Financial Spread BettingPosted by Filipe R. Costa on Jan 21, 2011 in Blog, Spread Betting | 0 comments
Financial spread bettingcan be a very effective way to trade the stock market, avoiding commissions and complexity, and making the most of your money. Here are some advantages of spread betting over regular financial trading.
1. Say goodbye to broker commissions
You don’t pay commission every time you buy and sell a spread bet contract. Those costs are very meaningful for frequent traders and for people with small accounts. Commission minimums are often charged by stockbrokers making small investors having to climb a mountain before making any profits. In spread betting you will face a bid-ask spread that is inclusive of commission but it is more transparent and normally much lower than what you would pay your stockbroker.
2. Say goodbye to stamp duty
If you buy UK shares you have to pay a fee of 0.5%, called stamp duty. In spread betting this stamp duty is avoided, because the trade is classified by the government as a bet and not as a trade.
3. Avoid capital gains tax
Similar to not paying stamp duty, your profits are free from capital gains tax in UK and most European countries. Other derivatives, including CFDs are not free from this tax. That is one of the best arguments in favour of financial spread betting. Why pay 10 or 20% tax, if you can avoid it?
4. Easy to understand
The value of a spread bet is derived from the value of the underlying asset. But unlike other financial instruments like options, that are not easy to master, a spread bet is very straightforward. You choose what you want to bet on and place a stake per point movement. Your profit is simply the difference between your buy price and sell price multiplied by the stake per point.
5. Get high returns on small investments
Financial spread betting gives you a powerful weapon called leverage. You only need to pay a percentage of the cost of your trade upfront. This is known as margin trading. Let’s say the margin is 10% for a specific stock. This means that you can buy £50,000 in shares with just £5,000. If the share price rises 1%, you collect a profit of £500, a 10% return on your investment. In some cases the margin is as low as 1% for more liquid assets like the main shares indices.
6. Profit from falling markets
You can either go long or short and profit not only from bull markets but also from bear markets. You can short sell with stockbrokers but it is not always easy, and often limited to larger trading institutions. Spread Betting levels the playing field and allows all investors big or small to profit from bear markets.
7. Trade 24 hours a day
Market trading hours usually run from 8.00 am till 4.30 pm. Not for a spread betting trader. Most companies will offer you 24h a day trading, from Sunday night until Friday night. Basically, you can continue to deal after markets are closed, which can become very handy when important news roll out after markets close.
8. Easily trade many markets in one account
Spread betting companies offer their clients a wide range of trading markets. You can trade shares from across the globe, including from countries like UK, US, Australia, Portugal, Germany. At the same time you can also trade currencies, commodities, indices, bonds, options, and some exotic markets not available elsewhere. This allows you to diversify your trading strategies and portfolio, giving you trading opportunities across the financial trading world.
Filipe R. Costa
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