Financial Spread Betting?

What Exactly Is Financial Spread Betting?

What is Financial spread betting? It is a type of financial speculation which allows global market traders to make a profit no matter if the market is on the rise or decline. Those traders that deal in bonds, shares, crude oil, and forex along with commodities like gold can make use of financial spread betting for increasing their chances of earning a profit for their transactions.

There are a number of benefits associated with this particular derivative. One of them is that you do not have to pay any taxes on the profit you make from transactions involving financial spread betting. The second benefit is that you are able to avoid unnecessary commissions. However, you will still have to pay some amount to the actual brokerage company depending on the spread which is the difference between the selling price and the buying price.

Another big benefit of financial spread betting is ability to access world market 24/7. You are able to do your trading in more than one market with the use of a single account and you are given the option of choosing a currency you feel appropriate and therefore, you save on exchange costs. You are able to place your bet on the movement of market prices. You may either go short or long and both ways, you can end up with a good amount of profit is the market moves in the same direction as you predicted.

Like every investment dealing in forex, shares or stock have some element of risk involved, similar is the case with financial betting. In any type of investment, you stand a chance of making a loss and in this type of investment, you will make a loss if the market moves in the opposite direction that you predicted.

Opening a financial spread betting account is not a very tough job since it does not involve much to stop you from opening open. To open up a Financial spread betting account, you can either do it through telephone or online. Spread betting is a very simple way of making profit when the stock market is on the decline because this is one type of investment where you can make a profit regardless of the market direction. However, it is not always the best option when it comes to long term investment plans due to the volatility involved, but those who are looking to make some short term gains quickly; margined trading by means of financial spread betting is the way to go.

Are There Risks in Financial Spread Betting?

Just like any other investment vehicle, financial spread betting has its own risks and benefits. Mostly, you will read about the advantages of spread betting but you will rarely see its risks being mentioned. But the truth of matter is that approximately 90 percent of the spread betting traders lose. One of the reasons why most people lose in the spread betting market is because they do not understand market trends and leverage well. Most of them see these as quite easy to deal with, but in real sense they are not.

Even though spread betting markets trend well, reliable trends are only shown in the longer time frames. Since a lot of traders want to make profits faster, they usually opt for short term day trending methods. But the problem is that moves within a day are random and they get stopped out continuously. Due to this, they never generate good profits. There are some long term traders who do not benefit from the long term trends because they do not know the proper way to deal with volatility and also to stop placement. As a result, they continually get stopped early before taking enough risk.

Most of the spread betting traders who are mostly concerned about reducing risks usually create a scenario that makes it hard for them to win. Leverage and volatility on other hand makes risk management to be extremely hard even for the most seasoned spread betting traders. To make good use of leverage, it is imperative that you study volatility and ensure that your stops are not too close. Your stops should not also be railed too quickly if you are looking forward to making large profits from big moves. When it comes to picking the market direction, most traders are very good at it, but the problem is that they keep being stopped.

Another risk that spread betting traders usually face is interest rate risk. This refers to the profit as well as losses that are generated as a result of the fluctuations in the forward spreads along with maturity gaps and forward amount mismatches in the foreign exchange book. The interest risk is usually caused by swaps. In order to minimize it, you will need to set the limit on the total of mismatches in your trade. You can do this by separating mismatches depending on their maturity dates into up to six months as well as the past six months.

If you are a new spread bettor, it is will advantageous if you avoid day or intra trading. You will also need to trade longer term but with a clear understanding of volatility, how to place stops properly and how to manage risks. By doing this, you will be increasing your chances of staying in long term trends. Successful traders usually understand the risks that the spread betting market has, and therefore they make sure that their trades are planned carefully in order to minimize the risks on their trading capital.