Spread betting is essentially a derived betting strategy that traces its genes to the 1940s when a securities analyst in Chicago formulated this concept. It is widely touted as an easy and safe alternative to traditional forms of betting. The distinctive factor of this form of betting is that the ownership of the underlying assets – be it a commodity or stock – does not lie with the participants. It works on the principle of speculating whether the price of the assets will rise or fall. The difference between the current value of the asset and the value at which it is sold is referred to as a spread. Here are five things to know in order to evolve sound financial spread betting strategies for beginners:
Your Profits are Tax Free
In a lot of countries such as the UK, proceeds and profits earned through spread betting are tax free. This includes all kinds of taxes such as capital gains tax, stamp duty and income tax, normally levied on other sources of income, which means you retain a hundred percent of proceeds earned from spread betting. The large number of people turning to spread betting to earn a quick buck or in the hope of a windfall can be attributed to this aspect.
The Long and Short of It
Unlike other forms of betting, it is not essential for the price of the assets to increase for you to make profits. There is a provision for long and short bets here – a long bet means you are speculating for an increase in price of the assets and a short bet means you are trading for a decrease in price – based on your research and intuition. In either case, you stand to make money if the price of the assets follows the trend you have betted on.
Trading on Margin
Another huge advantage of financial spread betting is that you don’t have to invest a huge capital for placing a bet, as this form betting is often leveraged. The amount of fee incurred is exponentially small in comparison to the amount you are betting – in most cases a mere 0.2 percent of the total net worth of the trade – leaving you with an opportunity to place higher bets without jeopardizing your financial stability.
It is Not Free of Risks
As with any other form of betting, spread betting too comes with its share of financial risks. Just like the opportunity of making big gains, losing all you have invested is also a very real risk. As they say, never place all your eggs in one basket. That is especially true if you are looking to make a fortune from betting.
Research is Key
There are a lot of financial spread betting companies out there, promising to provide you the right platform for getting initiated in financial spread betting and having your best interests in mind. However, the truth is your best interests are always going to be subservient to a company’s own interests. Therefore, it is crucial to do your homework before foraying into the betting scene and base your speculations solely on sound market research.
If the idea of financial spread betting appeals to you, invest some time in learning the ropes and understanding the potential for gains and losses before taking a plunge.