Financial Spread Trading Opportunity and Risk Involved
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The popularity of financial spread betting is growing rapidly. Before you invest your hard earned cash, you need to understand the basics.
What is spread betting?
Spread betting is a variation of trading where bettors trade on an unknown outcome. The spread betting company quotes two prices (the 'spread'), and a bet is made on whether the outcome will be above or below this spread. The profit or loss depends on the extent of deviation from the spread.
Sports spread betting is a popular version. For example in football match the spread betting company puts a spread at 10-12 corners for the match. A bettor approaches the firm and buys at £25 per corner above 12 corners. If the total number of corners is more than 12, eg 16 corners, then they make a profit.
Profit = (16 corners - 12 corners) x £25 per corner = 4 corners x £25 per corner = £100 profit
However, had there been some good defending there may only have been 9 corners in the game in which case the user would lose. Loss = (12 corners - 9 corners) x £25 per corner = 3 corners x £25 per corner = £75 loss.
In a "Sell" transaction, where you bet on the market to go down, it works the same way except the bet is made against the bottom value of the spread, in this case betting on less than 10 corners. You can spread bet on many types of financial market; commodities spread betting, and forex spread betting being a few of them.
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Financial Spread betting
In financial spread trading, bets are made on the movement of the price of financial instruments like stock indices, commodity prices etc.
Investors may spread bet on commodities, forex and stock market indices. Financial spread betting offers many advantages over traditional share trading. Unlike stock market trading, with financial spread betting you can make a profit even when the stock prices are falling. You need not pay any commission, irrespective of how often you trade. With financial spread trading you can also take advantage of the tax benefits*. Spread betting offers more investment variations than share dealing. Other than shares you can trade in stock market indices (like the FTSE 100, CAC 40 or NIKKEI 225), forex and commodities, thereby giving you many more options for trading and potential returns.
The risks involved in financial spread betting can be higher. You can lose more money than you initially invest. People who spread bet on shares need to understand the market. You can usually minimize risks by limiting losses using various tools and automatic trading orders known as 'Stop Losses'.
Knowledge
When it comes to financial spread trading, the more you know how it works, the more you can gain from it.
This is where Clean Financial comes in.
Find news, views, articles, analysis and anything else you may be looking for about financial spread trading. If you are a beginner you can benefit from the spread trading tips and strategies. Once you have knowledge on your side, financial spread trading will take on a new dimension. It will be more than just gambling. You should end up with a series of planned and calculated trades based on many market factors in order to maximise your potential.
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Financial Spread Trading Opportunity and Risk Involved' by KK, updated 16-Jun-07
For related pages also see:
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Financial Spread Betting in the UK, updated 04-May-07
When you spread bet on stock market indices, the stock market indices, eg FTSE 100 or NASDAQ 100, act as the financial instrument. The investor speculates on the price movement of the whole stock market index. Unlike share dealing, you do not actually...read article.
Spread Trading Tips - A Technical and Analytical Game, updated 04-Jun-07
Most experienced spread traders would probably cite one of their top financial spread betting tips is to understand the importance of placing stop losses and limit orders. You can use a stop loss or limit order feature at most levels. This feature limits your...read article.
History of Financial Spread Betting, updated 18-Sep-07
The rise of spread betting in the UK can be dated back to the '70s when in '74 IG Index was founded. At the time IG Index was the only spread betting company in the UK. This initial growth was helped partly by the liberal UK Government tax policies...read article.
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