Stock market spread betting can potentially be lucrative. It is a reasonably straightforward trading opportunity, although mastering it takes practice and patience. It is a niche of the overall trading industry, but thanks to its sharp nature of returns delivered, it is a popular form of trading.
Spread Betting on the Markets
Most associate spread betting with gambling on the outcome of sports or elections. Although the principle is the same, spread betting and the markets require no share purchase, and the trader simply speculates on whether a market price will go up or down.
There is no transfer of assets.
Added advantages include no tax, stamp duty, or commission.
The Spread Betting Market Trade Deal
The trader makes a deal with the broker and decides over the period of a day whether the market will rise or fall. As it is a spread bet, profits and losses are uncapped. This puts pressure on the trader of when to claim a win or take a hit. Many traders make the mistake of weathering the losses in the belief the market will rise, and they will win the day.
It is essential that the trader chooses a good platform for spread betting. Here is more information about finding the best spread betting platform in the UK and how to use them.
It is critical to understand leverage and the role it plays in stock market spread betting. Transactions are made more profitable and riskier because of leverage which is unavoidable. The trader must understand the full implications of his or her trade and identify and manage the risks.
For a trader to make consistent profits, an intricate understanding of the markets is needed. It is vital that the trader can place orders to execute to avoid significant losses. As such, a good understanding of the tools available and when to use them is essential for success.
Example of Market Spread Betting
To give you an idea of how it comes together, let’s look at the following example.
The FTSE 100 is currently at 7000. The broker offers a bid price of 6999 and an offer price of 7001. The trader wagers £10 per point stating the market will rise. Should the market close at 7021, the trader makes a profit of £200. If the market closes at 6979, the trader loses £200.
Note, the broker fee or spread is 2 points, 7001-6999. In each case, the spread is paid to the broker, win or lose.
The other aspect to understand is that pricing is dynamic. If we take our example above, should the market start to rise, the price might adjust from 6999-7001 to 7000-7002. Latecomers would have to see greater market rises to make a profit.
The nature of transactions between broker and trader are offered on all manner of markets and indices. They are, however, selected by the broker, and as such, brokers will offer alternative markets to bet on.
Spread betting may not be for everyone, but if it is for you, and after you gain experience, you may have a profitable future.