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18
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Understanding Spread Betting

Spread betting can be seen as a risky business, a high octane challenge for those who like to gamble. This is not a game for widows or orphans. Say you had a tip off that said that the Euro was about to cascade or alternatively the US stock exchange would make rapid gains against the Japanese stock market. You may want to use spread betting to gamble on these hunches.

Spread betting is a relatively easy platform to understand and it is one of the most inexpensive ways for a private investor to invest in hunches that may make them rapid profits. Profits are not guaranteed, but if you make the right calls at the right time your investment will have been worthwhile.

Spread betting permits you to follow the fluctuations in prices of an asset (basically whether it rises or falls). You can gamble on almost everything such as shares, products and commodities. The options are endless and the process is relatively straightforward and with the right advice there are monetary benefits to be made.

Importantly, you don't have to purchase the underlying asset you want to use in a trade. Therefore, you peruse and make a decision on spread betting companies' prices and look at whether they increase or decrease.

Spread Betting For The Beginner

Spread betting companies provide you with a quote, which consists of the bid, which is the selling price and the a slight higher offer, which is the buying price.

There are many risks to spread betting as there are rewards. If a trade goes wrong you can lose a lot, spread betting companies protect themselves by asking you to provide evidence that you actually be able to cover the initial outlay. This deposit is known as the margin and can vary in size - anything up to 10% or your original bet. Moreover, if you losses look like they a going to exceed your margin, a spread betting business may increase the percentage, this is known as the margin call. If you are unable to meet this, the company will terminate and close at the current market price.

Obviously, you will go broke quickly if you depend solely on margin calls to foot your losses. It is better to prevent losses being made in the first instance. These are orders use specifically to close out a trade at a level comfortable to you.

There are more potential problems with ordinary stop losses, as 'gapping' can happen. This is where the market is moving very quickly and numerous stop-losses are triggered simultaneously. Thus, you may not exit at they level you originally planned. If you exit at a price that sees you make a loss, then it is best to reevaluate whether you are actually using spread betting to its full potential.

CMC Markets offer a range of advice on spread betting and how to trade effectively and efficiently, without racking up losses.

Advantages of Spread Betting

Spread betting is free from all tax because under UK law tax cannot be imposed on betting profits, stamp duty or any capital gains. Furthermore, it is a very effective and efficient way of trading and it can be extremely cost effective. When you purchase shares through a reputable broker, you have to pay a nominal fee. With spread betting there are no commissions or hidden fees. The spread betting companies makes their money through the difference of the original price and the offered price.

However, it is not all linked to cost and saving money through not paying commission or hidden fees. Spread betting allows you to postulate on variety of markets that you wouldn't otherwise have the access to. Essentially, this means you can speculate on markets such as currencies, shares, the housing market, how many wickets a top class bowler will take in a test match, or how many corners there will be in a Premier League football game. Thus, spread betting open a world of opportunity for those who want to dabble and try their hand at different markets.

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