A Beginner’s Guide To Spread Betting

Originally developed as a way to invest in gold without buying it outright, spread betting has flourished over the years and become a popular way for investors to make money on a range of different markets.
For those who don’t know much about spread betting, read on to find out more about why you should consider incorporating this innovative investment approach into your strategy.

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Spread betting is the process of wagering on the outcome of a particular trade or event, such as the rise or fall of a market or asset class.

Brokers offer a buy price and a sell price for each wager, with the difference known as ‘the spread’. Because brokers make their money from the spread, this form of investment is one of few where brokers don’t make money on commission.

Spread betting is considered a cost-effective way for investors to grow their income, because it is considered gambling in the UK and therefore not subject to tax like other investments. Also, spread betting can be very lucrative when undertaken by a skilled and experienced investor.

What Are The Risks Of Spread Betting?

Like any form of investment, spread betting is a risk because you could potentially bet the wrong way and lose the money you invested.

It can also be highly addictive, as a form of gambling, and lead investors to take large risks too early and lose significant sums. Being high leveraged, spread betting can allow for big returns with little initial capital, but if you start too big you could easily gamble away your winnings before you’re able to enjoy them.

Market volatility can also mean that a sudden change in the market will make your previously lucrative spread worthless. Quick changes in the market can make it hard for investors, particularly those who are new to spread betting.

Brokers Make Their Money From Spreads, So Shop Around

As mentioned earlier, spread betting brokers make their money from the cost of the spread, not commission like most brokers. As such, it’s important that you compare the prices of trades across a variety of different brokers before you choose who you’re going to work with.

This approach will also ensure that you know exactly what each broker offers in terms of access to markets, deposit restrictions and platform technologies, meaning that you can select the broker that’s right for you and your investment strategy.

Spread Betting Is A Flexible Option

From forex to stocks, indices through to commodities, spread betting can be done on almost every market across a wide range of assets, including cryptocurrencies. As such, it’s a great solution for those that want to diversify their portfolio.

Bets can also be made either long or short, meaning that investors have even more choice when it comes to the way they trade when they spread bet. The bet duration can also vary, ranging from daily changes through to longer-term investments across larger periods of the year. As this method of trading is so flexible, investors can easily spread their risk throughout a range of different markets, asset classes and trade types.

It Can Also Be Used To Hedge Your Portfolio

As well as being a flexible form of trading, spread betting can also be used to hedge your portfolio and ensure that even if the market does drop, you’ve still got a chance of making some profit. You could spread bet either on gold, a typically inverse asset that would act against a rise in inflation, or you could hedge against investments you’ve already made so that in the event that they don’t work, you’ll still make some profit from the spread bet.

Using spread betting to hedge your portfolio is a prudent strategy in today’s financial market, particularly as there are a number of indicators suggesting that a global recession could occur in the not too distant future. Hedging any profile successfully requires skill and strong market knowledge, so make sure that you keep yourself up to date with the latest insights from across the financial world and work hard to understand the factors that are affecting your investments.

Beginners Need To Be Careful

It can be easy for beginners to make mistakes when they start spread betting, so you need to make sure that you do your research and take the time to understand the risks involved in spread betting before you invest. You can also use social trading platforms to spread bet, meaning that you can copy or mirror the investment strategies of other, more experienced traders and learn about spread betting as you invest.

In all, spread betting is a great way for investors to sharpen their trading skills and learn a useful new skill that will help them to diversify their portfolio and protect it from outside influences. Make sure that you research spread betting before you commit so that you can hit the ground running and succeed from the outset.

© 2020 All Rights Reserved Ella Woodward

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