Spread betting has become more and more popular recently, so if you have seen it mentioned here and there but are still not clear about what the term entails, today is your lucky day. We will review what spread betting is so you can decide if you would like to add it to your investing portfolio.
What is spread betting?
Spread betting is a kind ot trading that consists of placing a bet on a financial product, or more exactly on the range, or spread, or possible expected outcomes.
Let’s say you are betting on gold for example. You would be betting on how much you think gold will vary from what the market expects in say 90 days.
You then place a stake for every point the market moves in your favour, you win back that stake. Or, if the market moves against you, for every point, you lose that stake.
How do you place a spread bet?
In order to get started with spread betting, you need to open an account with a spread betting company, and spend a little time getting used to the platform before you get real and start placing your bets. Many companies offer the possibility to create a fake demo account so you can practise and define a game plan. Remember that you can lose part or all of your money with spread betting, so you want to be really cautious at first. Only invest money you can afford to potentially lose. With a fake account, you can see how much you would have win or lost if you had put real money on the bet.
So now that you have practised and are ready to get real, you can either place a long position, meaning you think the value of the asset will appreciate over the timeframe, or a short one if you think the value of that asset will go down. You can bet on market shares, on commodities, even on currency pairs. So if a currency loses value, but you have called that right, you make money. Unlike if you physically held a depreciating currency. The same goes when you bet on a share losing value. Even if the markets go down, you can make money. The more accurate your bet regarding the state of the asset, the more money you will make.
Should you consider spread betting?
If you do your research properly, and invest without letting your emotions blur your judgement, basing your bets only on the data you have at hand, spread betting can be a great way to earn money on the side. It doesn’t require many hours, you can place just one bet or dozens, and there is little else to do aside for then waiting for the outcome. You can place your bets from the comfort of your home, as spread betting gets done online and you just need an internet connection to get going. So you can do it pretty much at any convenient time during the day, instead of having to go to the bank to buy and sell financial products.
Spread betting is tax free, which is another great point in its favour. No tax gain tax or anything else to hand over to the taxman. And as I said above, even if the markets are in recession, you can earn money from spread betting. So it could be a great alternative when the markets are performing poorly.
DC @ Young Adult Money says
I learned about this in my derivatives class in college. I don’t see how it can be used for a practical investor, though, so I haven’t had a reason or opportunity to give it a try.
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Jayson @ Monster Piggy Bank says
I am learning about this spread betting. I read that serious problems developed in almost 15% of spread betters compared to 1% of other gambling. I think I am still giving it a try!
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