Spread betting is one of the most popular ways to speculate on the financial markets. It is extremely versatile and provides access to a vast array of markets including gold, forex, shares and even complete indices. Spread betting can also be one of the most cost effective ways to trade thanks to the tax savings is allows in a number of jurisdictions. Please read our simple guide, it can help save your…Money, Time & Stress!
The top 2 spread betting companies
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ETX Capital is one of the leading spread betting firms on the market. The company is authorised and regulated by the FCA.
FinancialTrading.com has an exclusive promotion available to all new clients that would like to sign up for an account with ETX. Claim an extra match bonus up to £5000 with ETX Capital by using the link below to sign-up.
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London based Spread Co is a popular CFD and spread betting firm. It prides itself on offering the best customer service of all the brokers and tight, fixed spreads from just 0.8. Spread Co offers easy access to over 5000 equities, 38 currency pairs and a wide selection of commodities.
What is spread betting?
Financial spread betting (also known as spread trading) is an exciting and fast growing way of speculating on the financial markets. The outcome of the trade is determined by how accurate a trade is, rather than whether you correctly bet on whether a particular market rose or fell. This makes is an entirely different entity to some other forms of trading such as binary options and what you would find through a bookmaker.
Advantages of Spread Betting
There are a number of benefits to using spread betting as a method of investing or trading over many of the other options available on the market. These include:
Leverage (also known as gearing) is a way for traders to gain high exposure to a market with a relatively small sum of money. Many spread betting companies allow their clients to trade some markets with just 1% of a trade’s nominal value. Leverage is one of the biggest attractions to spread betting for a lot of people as it allows them to make considerably larger sums of money than they would otherwise be able to. Of course the opposite can also be true if a market moves against you.
Range of Markets
The number of tradable markets available through spread betting accounts is truly staggering market leader; IG Index provides access to over 10,000 markets including shares, currency pairs, commodities, interest rates and much more.
Risk Management tools
Spread betting companies provide a number of handy tools that can be used to limit the risk involved with trading and maximise and profits that are realised. The following are available through most trading platforms:
- Stop Loss. The stop loss is probably the most important tool that can be used to manage your trades and should be used alongside the vast majority of positions you open. If for example you are trading a market at £10 a point and the maximum loss you are willing to incur is £100, you could set a stop loss 10 points away from the sell price. If the market went against you
- Guaranteed stop loss. During times of turbulence, it is quite common for a market to ‘gap’ meaning a price will move substantially in the blink of an eye. In the event that this happens, a simple stop loss might not be enough as it doesn’t have the time to close your position at the price you set. In this case you might want to consider a guaranteed stop loss. The guaranteed stop loss can be a likened to a stop loss with insurance. No matter how much the price of an underlying asset moves, your loss will be limited to the price you set.
- Limit order. A limit order is most commonly used to open a position if the price of a market moves to a more favourable level.
How to Open a Spread Bet
Perhaps the easiest way to explain how to spread bet is to use an example. The following is a step by step guide on how to place a trade through the IG Index platform:
Decide which one of the many markets you are looking to trade.
Click on the market, say the FTSE 100 index and decide on how much you want to trade per point. There are other options you can choose from here such as whether you would like to set stop loss or limit order but we are going to keep this example as simple as possible.
Do you thin think the price of your chosen market is going to go up or down? Click sell if you think that it’s going to decrease, and buy if you think it will increase.
That’s it! Your trade has now been placed and your job is now monitoring the price and to choose when you want to exit the trade.