Step-By-Step Guide to Spread Betting Shares for New Traders

LONDON, February 27, 2012 /PRNewswire/ --

Spread betting on the price movements of thousands of shares worldwide can be risky, but it's simple to learn how with our step-by-step guide for new traders.

With a low margin feature, you'll be able to trade on the price movement of a range of shares without owning the underlying asset.

Through this guide, you will receive a brief overview of spread betting, what it means to go long and go short on shares and the trading education resources available to you as a new trader to help build your confidence and practice spread betting with zero risk.

Step 1: A Spread Betting Overview

Spread betting is a popular product for traders both new and experienced because it offers an easy entry level into the financial market due to its low margin feature and high leverage. Spread betting is also tax efficient, as currently under UK tax laws all profits made are free from UK Capital Gains tax* and Stamp Duty*, though this remains subject to change.

Allowing traders to go both long and short on trades - spread bettors can profit from a market which falls as well as rises.

The aforementioned high leverage allows traders to deposit a small percentage of the total value that they wish to trade; increasing exposure which could potentially magnify profits.

However, should the market move against their position, a leveraged product such as spread betting, can also result in losses greater than the initial deposit making risk management imperative to a trading plan.

Step 2: Going Long on Shares

As an example, say you predict that M&S shares will rise and you 'go long', buying at £10 per point at the buy price of 351p. 

If you are correct, and the share price rises to 400p you may decide to take your profits and close you trade. As a result, you would net a tax-free* profit of £490.

If however, you predicted wrong and M&S shares declined to 302p, you would net a £490 loss.

Step 3: Going Short on Shares

Using the same example above, say you predicted that the M&S shares would fall, and you 'go short' and 'sell' at £10 per point, at the sell price of 349p.

Over the coming days, your predictions prove correct and the share price falls; when they reach 300p, you decide to cash in your profits, closing you trade by buying back at £10 per point at 300p.

By selling at 349p and buying back at 300p - with a £10 per point stake size - you net a tax-free* profit of £490.

Had you predicted wrong and the M&S shares had rose to 398p, you would have net a loss of £490.

Step 4: Trading Education & Resources

Innovative and accessible online trading tools and real-time financial news and trends have opened up opportunities to speculate on share movements.

The trading platform from City Index offers extensive trading education and resources to help you make better-informed spread betting decisions.

In addition, free trading webinars, held by a team of spread betting experts from City Index, enable investors to learn spread betting at their own pace, from their own computer, no matter where they are.

Summary

Whilst spread betting can be risky, the step-by-step guide aims to help new traders prepare before making their first trade. It is important to remember that as a leveraged product, you can incur losses greater than your initial deposit. Ensure you fully understand the risks.

*Spread betting is 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.

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. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for details.

SOURCE City Index