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Financial spread betting can be an exciting and worthwhile way to make returns, but it carries risks - and these are significant. Most experienced traders and investors have spread betting accounts on the side - but that does not mean they are suitable for all.

Could I Be at Risk?

Yes - anyone who enters the financial spread betting market puts their capital at great risk. If you are a beginner to the investor and trading markets, financial spread betting may not be appropriate.

What are the Spead Betting Risks?

Similarly to CFDs, financial spread betting accounts are easy to use but carry with them the risk that you could lose all of your invested capital, and be required to pay additional funds in the event of a loss.

Spread betting is very similar to gambling. It is therefore important that you are familiar with the shares or indices you are betting on before you begin. Your potential losses may be far greater than your original bid.

Remember, markets are volatile so it can be tricky to predict which way a market may move.

What Do I Stand to Lose?

Financial spread betting exposes the trader to lose ALL the capital they invest. By taking a bet, you are speculating on the direction a market will take.

A spread betting company will offer you a spread. That means they are quoting you a buy and sell price on a share. You then decide an amount you wish to bet on - this can be as low as 1 but can be a much larger amount. You bet on which direction the movement of the spread price - so whether the market will rise or fall. Therefore, if your bet is incorrect, your loss can increase significantly if the markets move against you - ie if it does the opposite of what you bet.

The trader is buying or selling a financial product with much less money than its full market value - therefore, the leverage or gearing is the relation between the potential loss or profit against your initial deposit. The higher the leverage, the higher the risk to your money.

If you make a loss, you are liable to lose your entire deposit, but also larger additional losses on top of your initial deposit.

You may be required to fund an additional, much larger margin in order to maintain your position. If you close your bet at a loss, you are required to pay any deficit.

What Can I Do to Reduce Risk?

There are a number of ways in which you can reduce your risk exposure, but please remember none of these guarantee the safety of your capital. You could still lose a great deal of money.

Ways in which you can reduce risk include:

Add a Stop Loss

This means you place a stop limit on each account, which will close your trade at a pre-set level in the event that the price should move against you.

Practise and Research

Many spread betting firms offer a 'demo account'. This is a very useful tool, and allows the would-be investor to practise without actually investing. That way you can get an idea of how the system works and build up some confidence before entering the real market. Researching the market in advance is also highly recommended.

Seek Independent Financial Advice

Before entering the market, it is wise to seek independent financial advice. That way, you know you are receiving unbiased advice on whether you can afford to risk your capital by trading on the markets.

Financial spread betting is challenging and exciting, but can also become addictive. Make sure you only invest an amount you can afford to lose. While there are many who have made very good returns in spread betting, you stand to lose a lot of capital very quickly.

Important Note:

Which Way To Pay is an independent online comparison website. Please be aware that while part of our website content involves the review and comparison of a wide range of financial products, we do not in any way recommend or encourage consumers to begin a Spread Betting transactions or to enter trade on any index, commodity, currency, stock or share. Please ensure you that are fully aware of the product before you begin transactions on Spread Betting.

Which Way To Pay, while using reasonable measures to ensure that data on the website is accurate, is not aware of your personal investment aims, objectives or needs. Site content is designed for information and interest only.

We would encourage that if you are unsure as to your suitability for Spread Betting, you seek independent financial advice.

The risks outlined here have been just some of those involved in Spread Betting. While there are many positive sides to this type of trading, it is nevertheless important to realise what the risks are when dealing with such an exciting and potentially rewarding financial product. Once you are prepared it is up to you whether you employ Spread Betting sensibly or without care or forethought.


Please Note: is not authorised to give advice under the Financial Services and Markets Act 2000.

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