Spread betting involves betting on the price movements in specific financial markets or instruments that enable you to make money. As a spread betting investor, your goal is to speculate on the values of the various instruments, including indices, commodities, stocks, and bonds.
Why Spread Betting Has Become Popular
Here are some reasons why spread betting has gained in popularity:
No Physical Ownership Of The Underlying Asset
The best thing about spread betting is that you don’t take physical ownership of the instruments being traded. Instead, all you do is speculate if the asset price will rise or fall and at what price to purchase or sell the asset in the market.
Therefore, spread betting, unlike owning underlying assets, is undoubtedly a more convenient technique of making a profit without having to deal with transactional limitations and additional costs. One thing you need to take note of is that spread betting uses leverage to maximize your potential profits and risks. Therefore, your losses can exceed your initial deposit.
Spread betting platforms exempt you from paying any commissions that you ordinarily incur when trading with a stock trader. This is because the difference between the sell and buy prices, the spread, covers the broker. Nevertheless, you may be required to pay for other charges after opening your position, including the overnight funding charges.
Spread betting platforms like Pepperstone offer their services 24 hours a day, making sure you capitalize on every trading opportunity. This means you have unlimited access to your trading account, seven days of the week, even when trading in some of the underlying assets is closed. Moreover, you can access your trading account through the range of apps available for both
Android and Apple smartphones and tablet users. Therefore, you never miss out on taking a position with huge profit potential.
Broad Range of Markets
One of the benefits of spread betting is you can trade in numerous financial instruments from one account. You can choose to spread your bets across a wide range of assets such as shares, indices, forex, bonds, ETFs, and commodities, all from one trading platform. Thanks to this, you can broaden your trading opportunities.
Another unique feature of spread betting that is different to CFD trading is your profits being exempted from paying capital gains tax and stamp duty. This is usually the case since spread betting is considered a derivative product, meaning you’re not purchasing the underlying asset but betting on the asset’s future price movements. Because of this, your potential profits will be affected substantially.
You Can Go Long or Short
Are the market prices falling? No worries, since spread betting allows you to profit in such scenarios. Therefore, regardless of the direction of market movement, you still get a chance to make money.
If you’re anticipating a rise in the price of a particular security, go long, and the profits will start increasing according to the price increase. On the other hand, if you predict a fall in the market prices, you should short-sell to make a profit. If the price falls as anticipated, you can buy the asset to cover your position and make a profit.
Smaller Initial Deposit
Spread betting is usually leveraged. Because of this, you can use a smaller initial deposit to start trading. As an investor trading on margin, you’re only required to set aside a small amount of money, and the remainder will be given like a loan by the spread bet broker. The funds deposited
in your trading account are used to guarantee your open positions.
Leverage in betting has made it accessible to a broader group of traders who otherwise cannot take positions in some assets because of the lack of sufficient starting capital.
Hedge Your Share Portfolio
One of the best aspects of spread betting is the ability to hedge your risks by speculating against the underlying security position if the movement is not as expected. When you do this, you reduce your exposure to any possible losses.
For instance, as a shareholder in an oil-producing company, you realize that rising oil prices may cause a fall in the share prices. Because of this, you can decide to take a short position on the company shares through spread betting.
So, the profit realized in the short position will offset
any loss that you may suffer in the shares of the oil-producing company that you hold. Hedging is an excellent technique of reducing losses or completely offsetting risks. Of course, the cost and risk of the hedge will reduce your profit potential if the share prices go up.
Short-term Trading Opportunities
If you’re looking for a way to benefit from the volatility often experienced in financial markets, then look no further than spread betting. This differentiates it from the traditional buying of stocks, which you often decide to hold for a couple of months or several years.
In contrast, typically in spread betting, you remain in specific positions for minutes, days, or weeks instead of prolonged duration. Therefore, it presents you with many short-term trading opportunities, and its short-term trading style further promotes this.
It is fast gaining in popularity. Now that you know of its benefits, it’s easy to understand why. Therefore, you need not wait any longer to become a spread betting investor and make substantial profits.