Spread betting with City Index allows traders, whether new or experienced, to speculate on the price movements of a wide range of financial markets, irrespective of their direction. An attractive alternative to more conventional forms of trading, there are four key reasons as to why new traders choose to spread bet.
1. Low Margin Feature
Firstly, its low margin features makes trading the financial markets easily accessible, requiring only a small percentage of the full value of a position as the initial deposit – typically between 1% and 10%.
2. Market Exposure
Secondly, unlike conventional forms of trading, traders can gain exposure and trade on the price movements of over 12,000 financial markets, including indices, shares, currencies and commodities.
3. Tax Efficient
In addition, spread betting is presently free from Capital Gains Tax and Stamp Duty in the UK. (Tax laws are subject to change and depend on individual circumstances)
4. Profit from a Falling Market
Finally, traders have the ability to profit from a market that falls as well as rises. With the option to go long and ‘buy’, profits can rise in line with any increase in that market’s price.
On the other hand, with a market that falls, traders can go short and ‘sell’; whereby their profits will rise in line with any fall in that market’s price.
However, it is important to keep in mind that if a trader chooses to go long, and the market goes in an opposing direction; losses will be incurred. Similarly, if the trader chooses to go short and prices rise, losses will be incurred.
With this in mind, the margin feature is also a double-edged sword; there is potential for not only significant profits from an initial small capital outlay – but losses as well.
What is a ‘spread’?
Where spread betting is similar to conventional trading; two prices are quoted for all spread bet trades, for example, a buy price and a sell price.
The buy price is the price at which you can go long, on the basis you expect the underlying market’s price to rise; the sell price is the price at which you can go short, on the basis you expect the underlying market’s price to fall.
The ‘spread’ itself is the difference between the buy and the sell prices.
As a trader, you will be looking for the tightest spreads available, as this will help you to maximize your profits when market movements occur.
The wider the spread, the longer it will take for you to make a profit.
Financial spread betting offers traders, new and experienced, a wide range of benefits. From its low margin feature, to the potential to profit from a falling market; spread betting is an easily accessible alternative to traders looking for exposure to over 12,000 markets.
It is imperative you remember that spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.