Spread betting and day trading is little understood, even in the world of investing, yet it is actually a strangely simple concept to explain. It is much like ordinary investing, with the essential difference being that the trader does not own the asset. Focusing on the movements of particular markets, such as forex, shares, or indices, it is high risk, fast paced, and challenging.
It works like this: the trader predicts an outcome, and the size of their profit or loss is calculated by the degree to which they are wrong or right. This is what differentiates it from fixed odds betting: its special spectrum of triumph or defeat.
To look at it in a little more depth, the outcome that is speculated on is the direction that the price of the financial instrument is expected to move. The further it moves in the direction you guessed, the greater your profits will be; the further it moves in the opposite direction, the higher your losses.
If you bet on an increase, this is referred to as ‘going long’; if you bet on a decrease, you’re ‘shorting’ instead. Let’s use a simple example to better explain this concept. Imagine for a moment that you go long on shares in Company A. If the value of these rises, you make a profit; if it falls, you make a loss. It really is that straightforward.
So why might you want to do it?
Five Reasons to Spread Bet
Tax Free
For many investors, the primary allure of spread betting is that it’s tax free. Unlike other investments, it falls into the class of gambling, so any potential profits are yours to enjoy in their entirety.
Small Margins
Spread betting is also attractive because of the leverage available. This means that traders do not have to put forward the full upfront value of the position in order to make their move, and thus their investment capital can go further.
Profits from Any Outcome
Spread betting has the added boon of being able to short the market. This means that irrespective of which way the value of an asset moves, there will always be an opportunity for you to profit, for whether prices rise or fall, calling the correct outcome is all that matters.
Thousands of Markets
Another lure for those willing to take a punt on spread betting is that there are thousands of available markets to choose from. These include everything from indices to commodities, shares, forex, options, and more. These can be accessed even by those who would ordinarily be unable to participate in them due to the fact that you never actually own the underlying asset.
24-hour Trading
Last but not least, spread betting can be especially attractive to those who need flexible investment options. With round-the-clock dealing on many of its markets, positions can often be opened and closed even if the underlying market is unavailable.
Spread betting is fast paced, high risk, and challenging, but it also has much to recommend it. If you’re looking for a new investment avenue, could it be the right option for you?
