How to Profit From a Falling Market With Spread Betting

LONDON, February 13, 2012 /PRNewswire/ --

Spread betting allows traders to go both long and short in a market, meaning that they can profit regardless of whether markets are rising or falling.

Another advantage to spread betting is that in the UK currently, all profits are free from Capital Gains Tax (CGT) whilst there is also no Stamp Duty - though this is subject to change.

This form of trading is rising in popularity; with traders able to gain exposure to over 15,000 different markets from a single platform - opening up markets that traders may not have previously had access to.

Spread betting can also be used to hedge against any potential loss in value of shares that traders physically hold during times of uncertainty.

Bull & Bear Markets

From the view of a speculator, spread betting can mean there are always opportunities to trade - regardless of whether we are in a bull or a bear market.

With all trades being leveraged, you are able to trade large positions by making only a small initial deposit, usually a fraction of the total trade value.

Joshua Raymond, Chief Market Strategist at City Index commented: "Many traders may hold long term shares physically but may also like to mix this with some short term speculating and this is where spread betting can be tremendously flexible."

Spread Betting

As a derivatives product, financial spread betting allows you to trade on the price movements of thousands of financial markets including indices, shares, currencies, commodities and more.

You could use spread bets to speculate on price movements irrespective of whether the markets are rising or falling.

Offering a low margin feature, spread betting requires you to deposit only a small percentage of the full trade value. Typically and depending on the market, the margin required stands between 1% and 10% of the total value of your position.

In turn, the potential for profits, or losses, from an initial capital outlay is significantly higher than in traditional trading.

Risks

As mentioned above, spread betting is a margined product. The risk with margin trading is that you can lose more than your initial investment.

There are several risk management tools available through City Index to help spread bettors minimise their risk. It is advisable that before you start trading, you practice through a spread betting demo account.

"One common mistake I find from spread bettors is that they can go into a position without having a clearly defined profit or loss strategy," states Raymond. "This can make trading very difficult and leave spread bettors open to what I call 'impulse trades' where they may enter or close a trade prematurely."

Raymond goes onto say that having a defined strategy and plan in place before a trade is placed is an important step for beginners, as well as understanding the market that they trade.

For example, if they didn't know that a spike in Crude Oil prices would raise airline costs when trading in British Airways shares, they could be fighting a losing battle.

Summary

Spread betting in a falling market by 'going short' allows traders to profit from any fall in price. However, the risks must be fully considered, which is why a spread betting demo account could prove invaluable to new traders.

You can learn more about Spread Betting with City Index at: http://www.cityindex.co.uk/spread-betting/

Spread Betting and CFD trading are leveraged products 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, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, Spread Betting.

We constantly look to improve the performance of 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.

SOURCE City Index