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Advantages of Financial Spread Betting

Financial Spread Betting is the crossover between conventional betting rationale and investing in financial instruments like currencies, indices, shares and commodities. It is simpler than sports spread betting because you are simply betting on the price of whatever you are trading to increase or decrease and the result is simply the price change multiplied by your unit stake.
The are two other ways to get involved with financial trading, one is actually buying something to own or use a trading broker to bet against something, and the other is a Contract for Difference (CFDs). The first of these is not really in competition with spread betting.

Similarities and Differences – Spread Betting and CFDs
Spread betting and CFDs are very similar in that they have a buy and sell price with the spread between them constituting the operators profit vehicle (CFDs on equities take a commission). They also both have a standard tick size, the minimum amount that the price changes by, and a minimum bet size, which is likely to be smaller for spread betting.

They have two main differences however;
  • Profits from Spread Betting in the UK are tax free – not so for CFDs.
  • Spread Bets always have a fixed closing date and standard CFDs do not
So when you are deciding on your online trading route it makes a lot of sense from a UK standpoint to choose spread betting.

Similarities and Differences – Financial Spread Betting and Sports Spread Betting
Both have a price spread and a final make-up price on completion of the event or a set time and date for financials. The result is always the difference between the buy and sell prices multiplied by the unit stake, whether positive or negative.

The first major difference is that sports spreads can be more complex with multiple outcomes on offer as with a multi-player index that dividends differently for each finishing position. Financial spread bets are just up or down.

The second major difference is that financials require a margin for a spread bet. In this respect it is similar to CFDs. A margin is an amount of money in your account that you need to put up against any possible losses. This is set by your trading partner or broker but ranges typically from 0.5% to 3% of what they consider to be a typical price movement.

For an example the FTSE 100 is traded with 1 tick being 1 index point and the margin requirement would normally be 0.5%. So in quiet times a large movement would be 100 points, so betting £10 per point the large negative movement would be £1000, therefore the margin is just £5. However with currencies the tick size is usually 0.0001 of a dollar or pound so swings can be quite big and thus margins are larger. This changes all the time and your trading platform will indicate to you what you allowed to bet according to the amount you have sitting in your account.

The third major difference is the notion of Stops. You can preset the point at which you exit your spread bet. This has two main points. Firstly you can exit the bet if it loses an amount you do not wish to go beyond and secondly, exit the bet in profit without having to monitor the position constantly. Using the FTSO example if you buy at 7,500 you can put Stops in at 7,400 and 7,800.

The fourth and final major difference is the spreads will widen and shorten depending on liquitity which usually is linked to whether the markets are closed, like the FTSE or quiet, like currencies when London and New York are asleep.

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