What Exactly is Spread Betting?
So what exactly is financial spread betting I hear you ask?
Although listening to many so-called experts talk about financial betting may make the whole thing seem esoteric, spread betting itself is no rocket science. Basically, spreadbetting is simply a tax free alternative to conventional stock trading!
Once you take this on board, you quickly realise that spread trading is a very easy concept to understand. So much so that if you have already traded ANYTHING at all in the past, then you should have no trouble understanding the main gist of the idea of financial spread betting.
Essentially for those of you out there who already trade derivatives such as options and futures in the past, well, spread betting is just another derivative instrument. In this regard, the trader does not actually buy the underlying stocks or currencies or commodity, instead, the trader simply speculates – or ‘bets’, to use the lingua – on where prices will be at some point in the future.
Viewed in this manner, it seems immediately obvious that spreadbets are very similar indeed to your regular trading in any other derivative instrument – only the name is different. Add a few other bells and whistles such as tax free structure and ability to use high levels of borrowed money to potentially enhance returns and there you have it!
You typically enter your position by betting either that a share price would rise or fall. A bet that the price would rise is called a ‘buy’ bet and conversely, a bet that the price would fall is referred to as a ‘sell’ bet or a ‘short sell’.
After the trading position is closed, your total spread betting profit or loss is simply calculated as the difference between the closing price and the initial opening price level of the bet. Since this is a bet rather than a straight forward trade, this difference is then multiplied your stake to determine the cash impact of the financial spread bet on your trading portfolio.
Stick with me and I will give you the full low down on financial spread betting …Learn professional spread betting strategies from the “spreadbettrader.co.uk” website.
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Source:ezinearticles.com
