Spread betting takes several forms. Day, rolling, monthly and quarterly spread bets all lend themselves to certain traders more than others.
The suitability of each type is based on the timeframe each investor prefers to work within. All things considered, however, financial spread betting is generally seen as more suitable for shorter-term traders than their longer-term equivalents.
Joshua Raymond of Finspreads explained: "[In financial spread trading] there are contracts that you can spread bet on if you have a long-term time horizon. But the majority of traders use spread betting predominantly for short to medium-term trading as spreads are much tighter for shorter-term contracts."
With this is mind, it is not surprising to learn that spread bet positions are generally held for shorter time periods than standard share trades. "The times that spread bets are typically open for range from a minute by minute basis to a quarterly basis," stated Market Strategist Raymond. "Certainly at Finspreads very few are left open for longer than six months."
So, what else makes spread betting ideal for the short-term trader? One prime incentive above standard share trading is that any financial spread betting profits traders make are currently free of stamp duty and capital gains tax*.
Spread betting also allows you to trade on the price of expensive commodities and stocks without having to pay to own the product in question. Another reason could be that people observing the markets over time have noted the daily volatility, and the trading potential it can create.
The rise of mobile trading has also helped to make short-term spread betting more accessible. Now traders have the autonomy to open and close spread bets on stocks, forex, commodities and more wherever they are, whenever they like.
Spread betting is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
Spread trading carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.
Article provided / approved by Finspreads which is a trading name of City Index Limited ('CI'), which is a spread trading and contracts for difference ('CFD') provider. CI is authorised and regulated by the Financial Services Authority, Firm Reference Number 113942.
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'Why Spread Betting is Ideal for Day Trading' edited by DB, updated 25-Mar-11
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products 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.
* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.
