||Financial spread betting offers a potentially tax-free way of buying and selling (including short-selling) stocks, stock indices, commodities and currencies. It can be more cost-effective than share dealing in a traditional stockbroker account, and it need not be any more dangerous.Most spread bettors lose money, and many of them give up within six months, but you don’t need to be one of them if you practice “Better Spread Betting”. And if you can make it work (or not fail too badly) during times of market meltdown, then you should be well placed to reap the rewards when the good times roll.
If you think that spread betting is the reckless gambler’s alternative to the more noble art of serious “investing”, think again! If you think you need a lot of money to get started with financial spread betting, think again!
This 150-page book includes tips from spread betting industry experts and popular financial authors including Malcolm Pryor, Robbie Burns (the Naked Trader) and Pete Comley (the Monkey with a Pin).
What is financial spread betting?
Financial spread betting is a tax efficient method of financial speculation that enables you to make money from falling markets as well as rising ones.
Financial spread betting firms are effectively bookmakers that allow you to bet on the performance of anything from commodities and shares to entire indices and currencies.
When you place a spread bet, you are not actually buying or selling anything, and this means that you do not have to pay stamp duty or capital gains tax. It also means that you can make money from the financial markets without needing a large amount of starting capital.
Usually, a spread betting firm will list two prices for any particular product – a buy price and a sell price. The buy price is usually slightly higher.
A buy trade, also known as an up bet, is one that you would make when you think that the price of something is set to rise. A sell trade, also known as a down bet, is one that you would make if you think that the price is set to fall. Let’s say that the FTSE 100 is listed at 5400-5500.
If you think it is going to rise, you would place a buy bet at 5500 for £10 per point. If the spread then rises to 5500-5600, you would make a profit of £1000, but if it fell by 100 to 5300-5400, you would owe the spread betting company £1000.
Similarly, if you think it is going to fall, you might take a down bet at £10 per point. Then, if it falls to 5300-5400, you would make £1000, but if it went up to 5500-5600, you would lose £1000.
Because the movement of the instrument you are betting on is the only thing that determines the size of gains or losses, there is no upper limit to how much you can win or lose.
This can make spread betting a risky business, and if you are not careful, you could end up losing much more than you can afford to pay. You can, however, limit your losses with a stop loss agreement that restricts the amount of money that you can lose on a particular bet.
These usually also restrict the amount that you can win, but this is a small price to pay for a big reduction in risk.
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