Spread Betting with Spread Co

I think it’s important to operate more than one spread betting account, for a number of reasons, not least because of the unlikely but not impossible risk of our trading counter-party going to the wall; as did World Spreads in 2012. Don’t get me wrong, I got my money back from the World Spreads collapse via the Financial Services Compensation Scheme (FSCS), but it took a few months– a few months that I could not have spent trading if I had put all my eggs into a single spread betting basket with a single spread betting provider.

One thing we should keep in mind is that many of the spread betting “brands” are actually “white label brands” of a single provider such as the London Capital Group. It’s a great company, and it underpins several of my favourite spread betting brands, but we need to cast our net a little wider in order to truly diversify across spread betting providers. We need at least one truly separate home for some of our trading funds, and such a home may be found at Spread Co here.

Spread Co Says…

Ajay Pabari, Founder and CEO of Spread Co here. said in response to my question “If you could give just one piece of advice to a spread bettor, what would it be?”:

Be smart in the use of leverage. Margin can be a very good thing. We all recognise a spread bet is a leveraged product, but then for most UK individuals, so is buying a house. When you buy a house in the UK, you pay a small deposit and you get your bank to give you most of the funding of the purchase price. Margin is what you call the small deposit that you put down when securing a spread bet trade.

The unfortunate thing about margin is the misconception it has been given. The margin rates for spread bets are set by reference to the volatility and liquidity of the underlying instrument. When you put a minimum deposit down in order to open a trade, even a small movement in the price of the underlying in the wrong direction will mean that you may have to pay additional funds as the position  goes against you. This is what frightens people off: the request to pay additional funds because they have only put down a small deposit.

What we recommend to clients is to try and put down a larger initial deposit, and not to go highly leveraged. In fact, perhaps start with no leverage at all. Get familiar with the product before you look to be clever with leverage.

I think what Ajay is really saying here is to keep in mind the risk you are really taking on when you open a leveraged position, and to deposit (or allocate elsewhere) sufficient funds to cover your true risk. A £1-per-point bet on on a 1000p-per-share stock places £1000 “at risk” even if the spread betting company asks you for only a £100 deposit to open the position; so if you make sure you have the additional £900 ready-and-waiting (just in case) then you can learn to love leverage! If you like the advice, why not open a Spread Co here. account?

Disclaimer: this posting is for general education only; it is not trading advice.