Spread betting was an unknown quantity for most and even some career traders couldn’t get their heads around the differences between traditional investments and spread trading. Put simply, traditional betting is the act of placing a wager on an outcome of a certain event. With spread betting, the bet is placed on the result over or below a certain point.
A company involved in spread betting will provide the bettor with a quote. The quote comprises a selling or bid price as well as a buying or offer price. For example, if the FTSE 200 stands at 5800, the firm would lay down a bid price of maybe 5795 along with an offer price of 5802.
If you predict that the index will increase, you wish to buy at the offer price for £10 per point at 5802. So for each point that the FTSE increase by, you gain £10. If the FTSE increased to 5822, the profit is worked out like this- 5822-5802=20x£10. So, the profit would stand at £200. If you believe that the FTSE will decrease, you could sell at 5795.
Trading firms, in order to protect themselves should things go wrong, take a deposit. This deposit is called the margin and is 10 per cent of the value of the bet. Should losses tend to be over the margin, the firm would require additional funds. This is known as the margin call and they would have the right to close the position at that time based on the current price.
The main advantage that traders have with financial spread betting is that if a profit is earned, he or she is not subject to tax. This is due to the fact that profits earned are free from both capital gains tax and income tax for anyone who can prove that they have another source of income on which they rely on to support themselves. However, should a trader be involved in spread betting for their financial survival and don’t have an additional source of income, they are required by the government to pay income tax on any profit that they make. This ensures that the tax system remains transparent.
The major risk when getting involved in spread betting is losing money- a possibility with any form of gambling. It is wise to study the market as much as possible before betting on a market. It has been seen that some traders tend to leverage trades when the market goes down in a bid to lock profits for themselves. This is why you also need to study the art of financial betting as much as possible so you can understand why successful traders do as they do. This will help maximise your chances of winning.
Once you have gained an understanding of spread betting and feel that it is something you could see yourself doing you will need to work with a trading firm. There are a number of trading firms with which you could work but the experience of Cantor Index, which offer spread betting offers to new customers, will serve you well. They are dedicated to ensuring that their customers enjoy a satisfying trading experience. They also have of all the latest tools available to you. Then you can make the most of your new-found knowledge before making each individual trade. This will give you the greatest chance to earn a profit.