Spread Betting: A Better Bet Than Standard Trading?

LONDON, October 4, 2010 /PRNewswire/ -- Some people see spread betting and standard trading as two different sides of the same coin. Whilst the pair do share similarities, it is fair to say that they also differ from each other in crucial ways. Naturally there are pros and cons to both, but here Finspreads (http://www.finspreads.com) focuses on the advantages financial spread betting has to offer over standard trading methods.

Spread betting makes a falling market as potentially profitable as a rising one.

Spread betting is a derivatives product that allows you to trade on the price movements of thousands of global financial markets including indices, shares, currencies, commodities and more. You can go long (buy) or short (sell) on market prices, making it possible to profit even when prices are falling. If you go long, your profits will rise in line with any increase in that price. If you go short, your profits will rise in line with any fall. For more information on how to spread bet, visit http://www.finspreads.com/learn_to_spread_bet.aspx.

There are of course ways for a standard trader to fall to profit from a falling market (short selling or purchasing PUT options, to name but two), but these methods tend to prove significantly more difficult than spread betting.

Spread betting is tax-free

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

Unlike standard share trading, a spread bettor never actually owns the shares on which they spread bet. This means that your spread betting income is not currently taxable in any way, for the time being at least. This is why spread bettors should always watch tax law changes like hawks.

Spread betting is commission-free

Because trading commission is already incorporated into the 'spread' when you open a position, the main costs in spread betting are those of actually funding your account and of the spread itself. What is more, thanks primarily to falling interest rates, long-term spread betting positions are a far more viable option than they once were. Today, many financial spread bettors are content to maintain single spread bets for the best part of a year.

Spread betting is leveraged

Spread betting is a leveraged product. When you place a spread bet on a price movement, you only deposit a small percentage of your full stake. This is known as the leverage and it has the potential to increase your spread betting profits (and losses). For more on spread betting margins, go to http://www.finspreads.com/about_spread_betting/spreads_and_margins.aspx.

To place a spread bet, you must have sufficient funds on account to cover the initial margin. For example, ABC Plc has an initial margin rate of 10%, so the initial margin would be calculated as follows:

Opening level of bet x stake x 10%

608.4 x GBP10 x 10% = GBP608.40.

In essence, the spread betting leverage makes it possible for you to replicate the same position as a standard trader - only with a much smaller initial outlay and with a much greater potential return.

Spread betting is a much more immediate form of trading

No share certificates, no phone calls to your broker, no problem. Online spread betting is a very in-the-moment style of trading. You can feel an impulse to go long on Company X at 9am and have your spread betting position open by 9.01.

Spread betting can result in losses that exceed your initial deposit. Tax laws are subject to change and are dependent upon individual circumstances.

For more on the differences between spread betting and standard trading, see http://www.finspreads.com/about_spread_betting/spread_betting_vs_trading.aspx

Spread betting carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.

SOURCE Finspreads