Published On: Thu, Nov 8th, 2012

Pros and Cons of Spread Betting

Spread betting is a popular investment tool that differs from traditional investment accounts by not allowing the investor to take physical possession of the stocks and shares they wish to invest in. Instead, the investor places a stake on a specific item of stock and gambles that the stock will rise in price; for each rise the stake of the investor is increased by a multiple of the investment made by the investor. As with all investments or trades on the stock market money can be both made and lost; a falling share price gambled on as a spread betting investment can lose money in multiples of every point the share price drops during a days trading.

One of the major advantages of spread betting on investments is the lack of capital gains tax that must be paid for purchasing stock in a company or corporation; each share bought is subject to taxation, but by not physically owning shares the problem of taxation is eliminated. A savvy investor can play the markets using spread betting to maximise their profits; investors who successfully predict a stock is about to fall in price can sell their shares and then buy them back when they feel the investment is going to rise again and make a profit for the spread better. Spread betting options are generally not limited to the country in which the investor is located, instead global markets can be included in a spread betting portfolio to allow betting to take place 24 hours a day whenever markets are open.

Like all investments made on financial markets the major cons associated with spread betting for profits is the potential for losses to be made on the deposit gambled. Spread betting losses are not limited to the money deposited into an account with an investment company offering spread betting options; instead the losses for a gamble on a failing investment can continue to grow beyond the deposited money. Some companies do offer loss control options that automatically sell an investment when a loss limit is reached to reduce the losses that can effect an investor. The major pros of spread betting include the continued rise in profits for each point a stock price rises by; if a stock rises by a large amount the stake deposited increase by multiples dependent on the size of the bet placed.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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