What are the best tips for spread betting?
Is spread betting riskier than normal share trading?
How should I choose the company to use?
How do I start?
If I make a spread bet do I need to be constantly monitoring the market to make sure I close at the best time?
Why isn’t spread betting taxed. Could tax apply in future?
Should I use an automatic stop loss?
Where can I spread bet commodities / oil / coal?
Where can I get my questions on spread betting answered?
If there is just one piece of advice I would give it would be to go with your own judgments. Years of trading have taught me the hard way. Don't rely on tips, speculation and Big Dave from the pub. While these sources may be well-intentioned (although not always) if you act on other people's tips you are following old news.
By the time the newspapers get hold of a story, even if it is fresh of the press, it is old news. You will end up buying high and selling low. One strategy that can pay good dividends is to be "contrarian". A contrarian investor does the opposite of what the man on the street might expect. He buys shares in a company that everybody says is overvalued, or about to go bust. He goes short on companies that the press is calling the next boom stock. OK, its not guaranteed to win, but for me it has made very handsome profits on many trades. For more advice post your question in our forum and have it answered by other readers or our in-house experts.
Spread betting is a leveraged trade. That means that in order to buy or sell a position you only need to put down a small deposit rather than the whole amount. However your winnings (or losses) are equivalent to what they had been in you traded the full value. That makes it extremely rewarding, but potentially also highly risky if you are overexposed.
Example. You believe the price of Tesco is going up and decide you would like to buy £1000 worth. With normal trading you pay £1000 and receive a certificate for £1000 of Tesco stock. With spreadbetting you only need to pay the margin requirement. In this case it is 5% so you pay £50. Fantastic!
Now imagine the price of Tesco goes up 5%. With traditional trading your stock is now worth £1050, and you have made 5%. However with spread betting you have made 100%! The risk comes becomes you may instead choose to open a much larger position, because of the low margin needed. That means if the market went against you you could lose much more than you put in. That makes spreadbetting risky if you are not careful to watch your exposure.
There are various factors to consider. Among the most important are the spread (ie, the difference between the price you buy and the price you sell), the software they use, customer service levels, and the range of instruments they offer (for example commodities, indexes, sports bets etc). To help you choose we have put together a guide of spread betting companies detailing their key attributes, levels of customer service and a customer rating.
Spreadbetting is surprisingly simple to do, in some ways much easier than traditional trading or even than sports betting. The spread betting guide on this site will answer your questions and has a number of simple worked examples.
Thanks to features such as automatic stop loss and limit orders that spread betting brokers offer, you really don’t have to watch your bets very much at all. As long as you know at what price you want to either close or open a trade, then the broker will do the rest for you, whenever that price appears.
Spread betting is not taxed in the UK and in our opinion never will be taxed. The FSA defines spread betting under the category of gambling because the odds are in favour of the brokerage company. Because it is gambling, whatever you win is technically a prize and not a capital gain. It is unlikely that the British government will ever classify spread betting in the same category as investing.
The tax free status of spread betting means that you can make huge capital gains without paying any tax at all. On the other hand if you lose money you cant offset it against other tax (capital losses).
Stop losses in spread betting limit you potential loss to what you can afford. One decision that is very simple is whether any stop loss function should be used at all. I would recommend one, particularly for the first few months.
Why wouldn't you always use a stop loss when spread betting? Experienced traders are wary of automatic stops. Whatever you trade the price fluctuates up and down around the trend line, even if it is overall moving in the direction you want. If the price suddenly hits the lower limit and stops out you will have lost money, even though by the time you come back and look at the trade it has recovered. This can be annoying and expensive.
The lesson is use stop losses, but set the margin wide enough that only a strong movement against you will trigger the stop loss to happen.
Most spread betting companies will allow you to trade in commodities. However the range offered varies greatly. At the current time the greatest range of commodities offered by a traditional spread betting company is at CMC, previously known as Deal 4 Free. www.cmcmarkets.co.uk
If you prefer to limit the risk, try BetOnMarkets, where you can place fixed price trades. See www.betonmarkets.co.uk.
Go to the Spread Betting forum. Our site experts (all themselves professional traders) will generally answer your question if others don't. You can ask anything related to sports or financial spread betting or CFDs.