The Pro’s & Con’s of Spread Betting

Today we are going to ask the question what is the driving force behind the recent rise in spread betting. Say you have £10,000 pounds of savings you want to invest, you will be faced by a multitude of investment opportunities. You might want to put the money into a basic savings product such as cash ISA, or manage a small stock portfolio on your own. You may invest in a fund managed by a fund manager or purchase units in a tracking fund which will track the performance of the market.
 
But there is one thing that all these options cannot provide you! That is the possible potential returns that a successful spread better can make. Though the risk factor is much greater it can be possible to make consistent returns far greater than any other investment opportunity.
A type of derivative, spread betting presents the investor with the opportunity to bet on the movements of shares, index’s, currency’s, commodity’s and bonds. It allows you to make returns on the movement of these financial products without physically owning the share or the bond. Spread betting has allowed increased access to the financial markets, the kind which was once limited to the financial big players.
 
Created in the 70’s by Investment banker Stuart Wheeler, spread betting really only began to catch on in the late 90’s. The continued rise of the internet in Noughties has only fueled the spread betting boom. With spread betting being one of the fastest growing derivative markets.
There are three main reasons for these huge growth of spread betting including the rise of high speed internet, increased market volatility and the potential returns a prudent spread better could in theory make. Spread betting has evolved in order to take in a growing and more diverse market.
 
Here we are going evaluate what the Pro’s & Con’s of spread betting are. This might help you get a better picture of whether spread betting is suitable for your financial needs. My views are unbiased.
 
Pro’s
  • There are considerable advantages to spread betting. The main ones are featured here.
  • Simple spread betting is easier to understand than many other financial instruments, including competitors such as CFD.
  • Small capital requirements accounts can be opened for less than £100, and trades can be made from accounts with balances as low as £28.
  • Small upfront costs you only pay a small amount of the total costs, usually only 10% upfront, this is known as margin trading.
  • Make money from both bull and bear markets, giving you the possibility to make money from both rising and falling markets.
  • Spread bets are tax free, providing you have another source of income.
  • One account and less paperwork, which makes managing a spread betting account an easier prospect than other types, of financial products.
  •  Extended trading hours, the huge range off markets and options means you can trade 24/7 365 Days a year.
  • The possibility of unlimited profits and limited losses.
Cons
  • Costs when you close the trade, all spread bets have expiry dates unlike traditional share trades, with conventional share trading you only confirm your loss once the shares have been sold.
  • No dividends or interest, you don’t get returns from investments in terms of dividends and interest but you can get the benefit of movements from such events and announcements.
  • Losses cannot be offset against capital gains, as can be done with traditional forms of share investments.
  • Due to how spread betting works you can lose more than your initial deposits,  which is something which isn’t a worry with traditional financial products. 
  • Spread betting is not geared towards long term investments, due to the costs involved in keeping a trade open over multiple.
Warning: Spread betting risk substantial financial loss, all transactions are at your own risk. Only speculate on financial spread bets within the limits you can afford. Spread betting may not be a suitable investment for all. Make sure that you understand the risks involved and seek independent advice to whether spread betting is suitable for you. 


Part of The Beginners Guide To Spread Betting

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