Betting isn’t a new term for many people. Also known as gambling, betting is where an individual puts something of great value with the hope of getting the desired results. There are many forms of betting, but this article focuses on spread betting, how it works, top tips for ultimate wins, and the advantages of spread betting, among many other concepts. Read on as you have a better understanding of spread betting.
What is spread betting?
Spread betting is like any other gambling activity where a person places a wage as they hope for a specific outcome. However, the slightly different between spread betting and other forms of trading is that with spread betting, the winner wins based on how accurate he or she is, unlike other forms of betting where the winner wins based on either a win or a loss.
How does Spread Betting work? Learn with Examples
Like any other online trading activity, spread betting operates by tracking an asset’s value to evaluate the market price position without owning the asset. The key aspects you should know about spread betting include leverage trading, margin, and short- & long-term trading.
Leverage Trading in betting spreads
You will gain total exposure for an underlying market cost fraction with leverage trading in betting spreads.
For instance, if you want to invest in, let’s say, Facebook shares, the ideal approach will be to pay an upfront fee for the full cost since you already know the market cost. However, when investing the same in spreads, it means you will need to deposit a cost of 20% of the total cost.
The purpose of leverage trading is to magnify losses and profits since they are calculated based on the full value of the position and not the deposit alone.
Note: You must put on a good strategy to ensure you can manage your exposure to define the amount you are comfortable risking.
Long & short spread betting
The long term spread betting means the market price can increase over a predefined timeframe, while short spreading means the market price can decline over a predefined timeframe.
That is why spread betting is essential, as it helps to weigh the market trends when rising and falling. So, you can sell to go short or simply buy to go long.
For instance, when you think the gold price will decline, you can opt to sell. However, losing or gaining under such an instance will depend on eh accuracy of your prediction. So, if the gold price increases, you will make a loss, but if the price declines, you will make a profit.
Margin spread betting
While spread being, you will have to put down an initial deposit called a margin. This enables you to open a position.
We have two margin types in spread betting;
Maintenance margin. The additional cost you may incur when your open position starts to experience losses and is not covered in the initial deposit. If this occurs, you will get a margin call notification reminding you to top up the funds or risk your position being closed.
Deposit margin. It’s the initial funding you deposit when opening your position.
Spread Betting vs. CFD Trading | CMC Markets: Know the Key Differences
CFD trading, derivative trading, and spread betting are almost the same, but slight differences. For instance, derivative trading involves signing a contract between two or more parties with all eyes on a specific financial asset or assets. In most cases, traders use this approach to analyze the future price trends of the asset, hoping to get a profit.
With CFD trading, you must pay capital gain tax-CGT while spread betting excepts you from paying CGT
Again, CFD trading is available worldwide, while spread betting is limited in Ireland or the UK.
Based on the differences, you will realize both tradings are beneficial and disadvantageous. The ultimate goal is to pick the one that will work well for you.
Benefits of Spread Betting
Maybe you are wondering why I should opt for spread betting? Well, the following are the benefits of spread betting.
You will enjoy commission-free trading
With spread betting, you are exempted from many costs when trading the shares as a broker, unlike other trading activities. For example, you won’t pay capital gains tax, stamp duty, and no commissions. Isn’t this amazing?
Spread trading has incredible tools to help you manage risks. When dealing with finance, there are many risks involved, and you can lose easily when you don’t have proper financial management skills. With spread betting, there is a stop-loss tool that helps to manage your exposure and price variables.
Spread betting works 24 hours a day from Sunday eve to Friday night. There are different commodities you can trade when you are free.
Speculate on falling markets
Spread betting doesn’t require you to buy an item you are taking a position for but gives you a chance to analyze whether the price will fall or rise. So, you can opt to go short if you think the price of a given product will decline. Still, you can opt to go long when you think the price will rise. This implies that spread betting gives you a chance to weigh and take immediate action that can favor you.