Opening a Spread Betting Account
In most if not all cases it is free to open a spread betting account, it can be done entirely on-line with (usually) no need to send documents, and you don’t need to deposit any cash when opening an account unless you want to claim a deposit-dependent sign-up bonus. You can usually start by depositing just a little cash to begin with, and that’s a good thing. There are some restrictions on who can open an account, such as the fact that you must be at least 18 years old and you must be resident in a jurisdiction in which spread betting is not prohibited – which in particular rules out the United States. When opening an account, the spread betting companies are obliged by the regulatory authorities to assess your “suitability” by asking questions about your income, assets and understanding of trading financial instruments. Providing you are solvent, with a reasonable income and some assets, and you have some understanding of trading financial instruments – e.g. you have bought or sold shares in the past – then you should not encounter too many hurdles when opening an account.
Most trades are executed online these days, and many providers now offer apps for trading on the go with smartphones and tablets. Make sure your provider’s website is relatively easy to navigate. While spread betting doesn’t involve buying shares, many of the underlying workings are the same; you need to research the market you want to trade on, so any tools will come useful. Good providers will offer seminars and tutorials to help educate clients.
Most providers offer comparable spreads on the most popular markets (major indices, forex pairs and shares). However, the spreads vary when it comes to less ‘popular’ markets. Obviously, the wider the spreads, the more it will cost for you to deal in that market, so make sure to shop around before you sign up if you intend to trade the more ‘exotic’ markets.
With the number of competitors coming into the market increasing year by year, traders cannot help but be seduced by price and, until recently, this had been the only driver of new business for some smaller firms. Indeed, it is not just the big firms that are wise to the appeal of offering low spreads. A quick flick through the pages of any financial title – this one included – will see campaigns with price as the main driver. Of course, there is nothing wrong in offering a competitive price. However, what our delegates considered was how low is too low? Inevitably, Worldspreads ‘zero spreads’ campaign – ultimately its last – should have been a neon-bright warning to the informed.
The “Limited Risk” Option
Some spread betting companies offer new clients the option of opening a limited risk account that attaches a mandatory stop order to every trade and which provides a limited range of markets to trade. To my mind, the irony here is that I consider it to be less risky to have access to a wide range of markets rather than a limited number of stock indices.
The ‘Demo’ Option
Almost all of the spread betting companies let you practice first by opening a demo account with them, and most of the spread betting books advise you to do so. This makes some sense if you really have no idea what spread betting is, and if you are therefore likely to make some very simple but costly‚ schoolboy errors‛ because you don’t know how to operate the tools at your disposal. But don’t go thinking that your‚ ‘demo’ experience will be anything like your subsequent real trading experience. The tools will be the same, but the emotions won’t be.
Brokers are trying to attract clients based on thinner and thinner spreads. Traders need to actually look at the underlying risk to their capital. Brokers have to be profitable and generate funds to provide a service. If you are not doing that, how are you covering your costs? Is that at the expense of security? People lose sight of that. Price is always going to be there. It is not going to go away but if you have zero spreads or close to, people need to ask how can they do that? As such you don’t really want to trade with anyone that has a zero point spread because you have to ask are they hedging their risks correctly?
The Best of All Worlds
Because opening a spread betting account is so simple, and the initial deposit requirements are so low, there is a good case for opening more than one spread betting account in order to benefit from the unique offerings of each one. I have often argued in “investing” circles that even traditional investors would benefit from opening a spread betting account with at least a small deposit, if only to access the research analysis and real-time charts that may be denied them on their stockbroker’s own share dealing platform.