Where to Spread Bet During the Credit Crunch
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Trading Features / Strategies from Financial Spreads.
In such volatile times there will always be opportunities to make a profit and plenty of opportunities to lose more.
One industry that has been thriving is the spread betting industry. Whilst there is currently a ban on shorting financial stocks, investors are still enjoying the ability to buy and sell indices like the FTSE 100, thousands of other stocks and shares, forex markets, crude oil, gold etc. etc.
Naturally many investors like the fact that there are no commissions or brokers fees and that spread betting profits are tax free*.
That is all well and good. Although at this point I should mention that spread betting is not a one way street, it carries a high level of risk to your funds. You can lose more than you initially invest. It does not suit all investors.
In short, you should only speculate with funds that you can afford to lose. And, like the adverts say, ‘ensure you understand the risks and seek independent financial advice if and when necessary’.
The above pros and cons are not the only considerations in today’s volatile market.
For investors across the world there are further important considerations:
- Am I trading on a stable platform? If I need to make a trade or close one now will the platform be up and running or down for ‘essential maintenance’?
- Are my funds safe? Or if the company in question goes bankrupt do I lose everything I have on deposit?
- What happens if I trade on a particularly volatile day? How can I reduce my downside?
These are questions you should be asking yourself in order to help minimise your risks.
Most of the big, established spread betting companies answer these questions quite well.
For example, IG Index recently reported, “during one week in October we took over 700,000 trades in a period of high volatility, but our platform was 100% reliable with absolutely no downtime”
What about my funds on Deposit?
FinancialSpreads.com, IG Index and the other established firms segregate your funds in a designated account. The account is ring-fenced from trading activities and covered by the Financial Services Compensation Scheme to make sure your money is safe.
What happens if I trade on a particularly volatile day? How can I reduce my downside?
Again, the spread betting companies have moved on from the days of ‘if you lose, unlucky’.
The firms now offer a variety of options. FinancialSpreads.com, for example, attaches a Stop Loss to every single opening trade you make. So if your trade goes wrong your bet will be closed out when the market hits the Stop Loss. It should be noted that Stop Losses are not guaranteed, eg if the market gaps then your trade will be closed at the next level the market trades at.
One of the ‘relatively new’ companies, ShortsandLongs, has gone one step further and attached a Guaranteed Stop Loss to every single opening trade you make. I say ‘relatively new’ because ShortsandLongs is a new service but operated by Spreadex. Spreadex is an established operator that has been in the market since 1999.
The Guaranteed Stop Loss works just like a Stop Loss. If your trade does not go according to plan it will be closed out when the market hits the Guaranteed Stop Loss. However, if the market gaps then your trade will still be closed at the level of the Guaranteed Stop Loss, not the next traded level.
A number of companies, now offer Guaranteed Stop Losses. The trade off is often a slightly larger spread however that can be worth the peace of mind (and…reduced risk).
In such volatile times there will always be opportunities to make a profit and plenty of opportunities to lose. Make sure you are not losing money for the wrong reasons.
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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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.
Article provided / approved by Financial Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'Where to Spread Bet During the Credit Crunch' edited by SD, updated 06-Nov-08
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