You may not have come across a certain Charles K. McNeil, but it would interest you to know that he is the brains behind the concept of spread betting. Despite his American roots, spread betting is more popular in Europe than overseas. In fact, it is yet to receive proper accreditation in the United States. Spread betting allows you to trade in stocks without actually owning them. You choose your assets and speculate on whether their prices will increase or fall. The idea of speculation makes this kind of stock trading more of a gambling game than anything else. Read on to learn more about spread betting.
The concept of a spread
You are probably familiar with the operations of the primary stock market; you won’t have any problem grasping the idea of the spread. Just like in stock market trading, you quote two prices for your spread bets: one at which you buy and the other at which you are willing to sell. It is the difference between your buying and selling price that comprise the spread. This difference is of interest for you as well as spread betting companies such as CMC Markets as it makes up their profits. It is possible to earn maximum returns because you won’t have to pay commissions or taxes as is the case for stock market trading.
The spread bet edge
You are probably familiar with the intrigues of the stock market trading, the most basic being that you gain if stock prices go up and lose when they dip. The implication here is that you either win big – or lose big! Even when you manage to make some gains, capital gains tax and stamp duty are lying in the shadows waiting to tear into your hard-earned proceeds. It is a little different in spread betting, where you decide how much to commit per point increase or decrease. While the bet you capture may be the same as the one in stock market trading, your final earnings will be far much higher since no taxes are waiting to eat into the proceeds. The exemption from paying duty is the edge spread betting enjoys over stock market trading.
Forex spread betting
If you would like to venture in the foreign exchange trading business, you won’t have anything to worry about since spread betting has already made inroads into the foreign exchange market. It involves placing bets on the changes in currency exchange rates, predicting whether the rates would go up or down.
Managing the risk in spread betting
You do realise that spread betting is more of gambling than business. Consequently, it is rife with many risks, some precedential while others are completely unexpected. You may incur massive losses, but fortunately, measures are available to help you prevent or minimise the extent of the loss. You can use the Standard Stop Loss Orders which minimise risks by automatically closing out a losing trade once a certain price level has been surpassed. Alternatively, you may go for the Guaranteed Stop Loss Orders which guarantee to close out your trade at the exact value that you set in spite of the prevailing market conditions. However, this method is not without costs: you will have to pay your broker for the guarantee.
The art of making predictions
Spread betting, just like stock market trading, requires you to fine tune your prediction skills to make a kill on the treacherous financial markets. Before picking on the stocks to trade in, you need to analyse the prevailing market conditions and the past trends for such stocks. You may not be in the know, but there is no harm in doing a little research and gathering as much knowledge on market trends as possible. If you are allergic to reading, spread betting may not be for you because you may make huge losses due to poor predictions. You may also need to listen to financial news and consult experts in the field.
Spread betting allows you to engage in the buying and selling of stocks without necessarily owning them. You place bets on the points of increase or decrease in the prices of the stocks you have selected and wait for the win or loss. Unlike stock marketing trading, your winnings don’t attract taxes and other levies.