Have you ever tried financial spread betting? This trading technique can develop your finances without investing large amounts of capital, allowing you to deposit a fraction of the total trade value.
Whether you’ve tried spread betting before or not, it’s essential to research this trading method as there are risks to be aware of. We’ve gathered all the top spread betting advantages and disadvantages to ensure you know how to navigate spread betting with awareness. Read on to find out more.
Table of Contents
Key spread betting advantages
Spread betting involves betting on the outcome of a market event. Here, the payout is based on the accuracy of the bet and not on specific results like investments. Before you try this risky activity you need to understand what the possible advantages might be in UK
Leverage makes capital go further
Thanks to the leverage involved in spread betting, your capital goes further. Nothing is more satisfying than depositing a little and receiving a lot. If this sounds good to you, spread betting might be your next financial step.
A small initial deposit (often referred to as a margin) will give you full market exposure. Make sure you note that your loss and profits are calculated on the total size of your position and not just the margin. Due to this, leveraged trading magnifies both gains and losses. Always evaluate the risks before you go all in.
Trade within different markets
Spread betting isn’t an isolated industry. Did you know that you can place spread bets on more than 18,000 different financial instruments like crude oil? These include forex, shares, commodities, indices and more. All are available via one spread bet login. Spend your time in other markets to increase your profits. Variety is the spice of life!
Out of hours trading
Standard trading hours vary depending on the market you’re in. A vital example of these differences is that forex can be traded 24-hours a day, whereas commodities and shares are only traded when their underlying exchange is open.
No commission
Typically, spread betting allows you to trade without paying any commission. Much of the time, the cost of an opening position is covered within the spread. This is ideal for anyone looking to invest as little as possible in initial capital. Other charges may appear once a position is open, such as overnight funding charges.
Short or long
One of the most popular advantages of spread betting is that you can take advantage of markets that are increasing AND decreasing. You’re betting on the direction the asset’s price will move, not buying the asset. Unlike traditional trading, sometimes you’ll celebrate the decreasing cost.
Spread Betting Risks
Though spread betting comes with an array of benefits, there are some risks and disadvantages that you need to note. Before you get started, make sure you’ve evaluated the full picture of this trading method.
Market volatility
One of the major risks faced by spread bettors is market volatility. As markets can dramatically change, your bets can jump, or gap, too much lower prices in seconds. Bettors must remain aware of financial markets and the risks involved with rapid price changes.
Account closes
Another key risk of spread betting is account closing. If the prices suddenly drop and your account lacks sufficient funds, the spread betting firm will automatically close your account.
Holding costs
If your bets are holding a position for a longer amount of time, you may incur holding costs. These costs can sometimes exceed your profits or magnify your losses. This leaves bettors with more to pay and no official earnings.
Leverage Losses
If you use leverage within spread betting, you can lose everything you’ve invested, plus more due to leverage. This can lead to you losing money rather than gaining, so consider this thoroughly before investing.
What about spread betting taxes?
Tax regulations for spread betting differ from country to country. We have some good news for UK traders; spread betting profits are tax-free in the United Kingdom. You also don’t have to pay stamp duty, saving you further costs. Additionally, you won’t have to pay capital gains tax on profits for most spread betting in the UK.
UK income tax might impact you when you trade with derivatives in the UK. However, this will depend on your trading and spread betting profits. If you’re unsure about personal taxation and trading, discuss your situation with a professional tax advisor for accurate advice. Of course, some personal circumstances will differ, so make sure you investigate the spread betting tax and any possible changes before you get started.
Final thoughts
Spread betting is a common trading technique used worldwide. But, remember there are pros and cons to this trading method. Take the time to plan ahead and always calculate possible risks before going all in. If you’re unsure, always research more or consult a professional for advice.
