Beginner's Guide to Spread Betting

 

Gambling vs Trading

Summary
For any trader looking to investigate the possibilities of spread betting there are certainly benefits and detriments to consider. Indeed it may not even be possible for many as gambling laws prohibit the use of spread betting accounts.

The potential for increased risk is one such consideration. The spread bet firms are keen to illustrate the fact that a smaller margin requirement can lead to massive return on your account balance through superior leverage. However, in truth this extra leverage may not be needed, as a successful strategy will not increase the risk placed on a trade just because it is possible. This makes the benefit of increased leverage almost obsolete unless you wish to be able to maintain your positions with a smaller account balance, thus freeing up funds for other investments.

 

 

 

On the other hand, any profits made through spread betting are currently classed as tax free (tax laws can change). The profit saved thanks to this lack of tax is a heavy consideration for most, although it must be noted that any losses incurred cannot be claimed back against your tax bill for the year.

There is slight resistance to the spread bet movement; those who disapprove claim that it robs the market of liquidity as more and more traders choose spread betting over open market trading. However, if spread bet firms hedge their clients’ positions in the open market, as many of them claim to do, this liquidity would find its way back into the market. Therefore it must be the case that spread bet firms do not hedge or there is no loss, or at least very little, of liquidity.

Contents:
1. Introduction
2. How it Works, Similarities and Differences
3. Examples
4. Gambling vs Trading
5. Summary

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