Essential Advice for Traders Switching to Spread Betting

LONDON, December 29, 2011 /PRNewswire/ --

As a popular alternative to regular trading, spread betting gives traders the opportunity to speculate on price movements irrespective of whether the markets are rising or falling. Spread bets are also a margined product which is free from stamp duty and capital gains tax. This is why so many traders are now seeking advice on how best to switch from trading stocks and shares to financial spread betting instead.

Spread betting is a margined product that only requires traders to deposit a small percentage of the value of their position. This means that the potential for profits, or losses, from an initial capital outlay is significantly higher than in traditional trading.

With thousands of financial markets to trade on, including indices, shares, currencies, commodities and more, spread betting is a very attractive option for those new to trading, or for traders who want to make their portfolio work harder for them. Here, provider City Index offers advice for those new to spread betting.

Watch Your Margins

Because only a small deposit is required to start spread betting, many traders use up their margin with a single opening trade if the market starts to go against them.

The reason this is detrimental is that it leaves little surplus a trading account to allow for price fluctuations. There needs to be sufficient funds in an account to sustain a loss before the market goes in your favour and profits can be made.

If extra margin to cover positions within the market isn't available, the trades can be closed out as soon as funds run out. Meanwhile the market conditions could improve shortly afterwards, causing traders to miss out on any profits.

Place Closing Orders

Many trading platforms feature closing orders in the form of Stop Losses and Limit Orders. You can place stop losses to close your trades at set price points, therefore never risking more of your capital than you intend to.

In some markets it may be advisable to pay a small fee for Guaranteed Stop Losses. This will ensure that no further money is lost in paying the difference between stocks closing at the end of one day and opening lower at the start of the next day.

Limit Orders can also be used to automatically cash out a trade when it reaches a predetermined level of profitability. While this may not always fulfil the highest profit potential, it can help to minimise losses by ensuring that a profit is made before the market goes against you.

Avoid Large Individual Trades

Many traders live by one market and die by one market. But by placing a large spread bet in a single market, success or failure depends solely on the movement of that one market. By spreading trades across a number of markets traders can diversify their risk.

Spread betting is an alternative to regular trading and offers multiple features such as leverage, the ability to go short (trade on falling markets) and  instant access to over 12,000 markets. Spread betting also enables you to enjoy tax-free profits*.

Margins, closing orders and a range of markets are just a few of the areas a trader will need to master in order to fulfil their profit potential with spread betting.

To learn more about how spread betting measures up to traditional shares dealing and find out which form of trading is most suitable for you, visit http://www.cityindex.co.uk/learn-to-trade/ at City Index.

Spread betting is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, many of them discovering them through a City Index trading platform. As a group, City Index transacts in excess of 1.5 million trades in over 50 countries every month while providing access to many instruments including CFDs and, in the UK, financial spread betting.

We constantly look to improve our platforms and expand our range of services. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support.

*Spread betting and CFD trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

SOURCE City Index