FINANCIAL SPREAD BETTING - FAQ's
Please find below more information on Spread Betting. Just click on the links to get more information.
- What is Financial Spread Betting?
- How Does it Differ from CFDs trading?
- How does Financial Spread Betting Work?
- How are Profits and Losses Made?
- Is it Regulated?
- What Are the Advantages?
- What Are the Disadvantages?
- What Are the Risks?
- My Broker Offers Binary Betting - What is This?
What is Financial Spread Betting?
Financial spread betting is very similar to CFDs trading. It allows the trader to take a position - in other words, guess or bet - which direction a market will take. Like CFDs trading, the trader does not actually invest in the underlying share.
How Does it Differ from CFDs trading?
So far, the two types of trade sound very similar: neither require stamp duty, and both offer a method to invest in derivatives.
But unlike CFDs trading, financial spread betting does not require the trader to pay any commission. This is because financial spread betting firms swallow the commission. They do this by charging a slightly wider bid offer spread than is the actual market price. CFDs are also often subject to capital gains tax, whereas this does not apply in financial spread betting.
One of the main differences between CFDs trading and financial spread betting is that the former is more likely to incur financing charges. This is because it is more common to carry a position over to the next day in CFDs trading, which can incur interest charges. Financial spread betting positions are usually closed at the end of each day.
How does Financial Spread Betting Work?
The trader is given a spread on a live underlying market price on a chosen stock or share. He or she then bets on whether this market will rise or fall.
Financial spread betting is conducted in one currency so the trader is saved the extra cost of exchange rate fees.
How are Profits and Losses Made?
If the trader bets correctly, and the market moves in their favour, they make a profit of their stake multiplied by each point of favourable market moves. However, if the market moves against them, they will make a loss of their stake multiplied by each point the market moves against them.
Is it Regulated?
Yes. Financial spread betting is closely observed and regulated by the Financial Services Authority. While comparisons have been made between financial spread betting and regular gambling, it is in fact a financial derivative product and therefore companies offering trading tools must abide by strict guidelines, rules and regulations.
What Are the Advantages?
Financial spread betting has its plus points:
- Tax and commission free trading.
- Easy to method of investing.
- Benefit from versatile markets.
- Whether they rise or fall.
- Does not require much trading experience.
- Does not require large amount of capital.
What Are the Disadvantages?
There are a few setbacks associated with financial spread betting, including:
- Spread betting is a high-risk activity.
- Can make substantial losses.
- Requires some research before begin.
- Markets can be volatile and experience sharp changes.
What Are the Risks?
If you are planning to enter the financial spread betting market, please be aware of the risks and before commencing, it might be worth seeking independent financial advice. It has been said that financial spread betting is not suitable for beginners.
- Can lose a lot of money quickly.
- Can lose more than original deposit.
- May be required to pay more funds to cover loss .
- Only trade an amount you can afford to lose.
It is highly recommended to try a 'demo account', which most financial spread betting companies offer online. That way, you can test the market and see if you suit spread betting. Some services even provide an automatic stop loss action on each position.
You may also be offered the option to initiate a stop loss on each position you open. Stop losses are placed on a position so that it stops a loss continuing past a certain pre-arranged amount. This might be offered at an extra fee and is not guaranteed to prevent loss.
More Information on Spread Betting Risks
My Broker Offers Binary Betting - What is This?
Binary betting is a side product of a financial spread betting broker. It works on a simple 'yes' and 'no' principle, and is viewed as being less risky than regular financial spread betting, because you know in advance what you can win or lose.
Binary Bets are not regulated by the FSA. This is because they are 'fixed odds' bets - so you know in advance what the maximum loss or profit will be.
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