Posts tagged Spread Betting
Financial Spread Betting The Scenario Today
Jan 1st
You should be able to find several indispensable facts about financial spread betting in the following paragraphs. If there’s at least one fact you didn’t know before, imagine the difference it might make.
There was a time when financial spread betting was just a way to “punt” on the financial markets, purely a gambling product with wide spreads and odds firmly in the bookmaker’s favour.
What really shifted opinion was the introduction of more transparent pricing. Spread betting companies recognised that spread betting was a cheap, flexible way to play the financial markets, but the instruments remained bound by pricing associated with betting. The true evolution of spread betting occurred with the introduction of more transparent pricing, allowing retail investors to make judgments based on the cash market price in common with the physical trading of shares or contracts for difference (CFDs). This coupled with more competitive dealing spreads, means betting on the financial markets has become a serious way to trade.
Many people are using spread betting as their initiation to the financial markets. Many say spread betting offers much more for much less. Of course spread betting is best suited to short to medium- term trading strategies, but rolling cash and daily bets mean spread betting should be included as a weapon in the armoury of any investor, whether for speculation or risk management.
Daily spread bets and rolling cash bets have been introduced by a number of the spread betting companies. Bets of these types offer a product based upon the underlying cash price rather than the traditional futures price, allowing traders to relate prices to the tangible cash market.
There are two good reasons why you should consider technical analysis.
1. ‘Buy and hold’ is dead
In the past you could go long of any shares and eventually, if you waited long enough, you would likely profit. That’s no longer the case. How can you put a limit on learning more? The next section may contain that one little bit of wisdom that changes everything.
2. Brokers were simply following the trend
Brokers’ buy notes and tips in old times were correct, not because of their analysis, but because of the up trend of the market. Now the trend has changed and the shortcomings of fundamental research is being revealed. Chartists are now credited with predicting the bear market – and how long it will last.
The problem that has been highlighted in a bear market is that much of the financial world is geared to markets going up and has a vested interest in them doing so. There are only two main groups that are not bothered whether this is happening or not: chartists and spread betters. Chartists are only really concerned with being seen to predict the markets correcting and spread betters are happy as long as it moves enough for them to trade quickly and successfully.
Traders no longer use spread betting simply for speculation. Its flexibility makes it ideal for hedging and particularly useful with sophisticated strategies such as pairs trading. Traders with a significant share portfolio are turning to spread betting when market prices are going down to lock in profit. Having pricing closer to the underlying cash price and competitive spreads is vital to ensure hedging is effective in achieving a market neutral position.
Trading strategies that have become increasingly popular are pairs trades on both individual shares and indices. A pairs trade usually compares the performance of one share against another linked share. For example they are in the same industry.
Many people are using spreadbetting as their initiation to the financial markets. Many say spread betting offers much more for much less. Of course spread betting is best suited to short to medium- term trading strategies, but rolling cash and daily bets mean spread betting should be included as a weapon in the armoury of any investor, whether for speculation or risk management.
This article’s coverage of the information is as complete as it can be today. But you should always leave open the possibility that future research could uncover new facts.
Spread Betting Is Worth The Risk For Clued-Up Traders
Jan 1st
THE persistent refusal of Chancellor Gordon Brown to make any commitment to reform Stamp Duty Reserve Tax on share transactions – at 0.5 per cent the highest in Europe – has played a large part in the remarkable growth in popularity of Contracts for Difference (CFDs) and spread betting.
Since, unlike conventional instruments, CFDs and spread bets do not confer ownership of the underlying asset – traders buy or sell the price movement in the underlying equity without ever taking delivery of it – neither is subject to stamp duty. And because spread betting falls within the gaming laws, it is also exempt from Capital Gains Tax.
The other key appeal of spread betting is that, as a margin product, it enables traders to gear up their investments. And because, as a margin product, traders could potentially lose a multiple of their initial stake, spread betting is recommended for use only by professionals, day traders and experienced investors.
But while there are risks attached to spread betting, there are various tools available – such as guaranteed stop losses – that can help manage that risk by, for example, inputting to the system parameters to alert traders to specified price movements. Another reason for the recent growth in the popularity of spread betting can be attributed to the fact that, in addition to speculating on the underlying equity, investors can trade on the various indices. Indeed, spread betting enables traders to profit from both up and down movements on a wide variety of financial markets, whether indices, individual shares or commodities, such as gold or crude oil.
Unlike fixed odds betting, under spread betting traders don’t risk a certain amount per bet, and there is no fixed profit or loss. That’s because the profit and loss on a financial spread bet is always open as the trader is betting a stake – usually pounds per point – on the direction of the market.
For example, a trader might expect the FTSE 100 index to rise and so decide to buy it at £2 a point using a spread bet. If the trader bought the FTSE 100 index at 4950, risking £2 a point, and then sold it when it rallied 50 points to 5000, his profit would be £100. But if the index moved lower and the trader subsequently sold his bet at 4925 to take a loss, then he would lose £50.
This is the difference between fixed odds betting and spread betting – a trader’s ultimate profit and loss with spread betting is never known until he liquidates the bet.
Using spread bets a trader can also bet on a downward market by selling short. If he was bearish towards the FTSE 100, expecting lower prices in the future, then he could sell the index short at say the market price of 4950, and then cover this bet or buy it back at 4900. If his stake was £2 a point then his profit would be a tax-free £100.
But if his view is incorrect and the FTSE 100 rises, and so he decides to take a loss by buying back his down-bet or short trade at 5000, losing 50 points multiplied by his £2 stake represents a £100 loss.
The most significant cost in spread betting is the spread – the difference between the bid and the offer price – and this is the main reason why hedge funds use CFDs and not spread bets. The wider the spread, the more a speculator will pay to trade.
Fortunately, though, spreads are getting tighter due to increased competition as investors are beginning to realise the advantages of financial spread betting.
Spread betting appeals to the same kind of market as CFDs, namely experienced traders, active in the market who understand the risks associated with margins and gearing. Much of spread betting can be short-term trades, volume-based, high volume day traders coming in and out of positions.
Experienced traders all spread bet for the simple reason that if they can make £10,000 from spread betting, then they can keep £10,000 spread betting, rather than handing over a significant proportion of it to the taxman.
read more about them at www.contracts-for-difference.com