Spread Betting Companies

If you are an avid gambler or someone involved in the world of stocks and trading, you may want to turn some attention to the twenty-plus spread betting companies now actively operating in the United Kingdom.

Spread betting allows the punter’s successes to be amplified inasmuch they are not restricted by predetermined odds.  The flip side however is that potential losses on a single bet are also unrestricted and may be an unknown quantity before the event.

Before you stop and say “I’m not interested in risking money in the markets” it is important to note that you aren’t actually doing any investing when you participate in spread betting of this kind. Financial markets spread betting does involve the value of a market or a specific company, but the individual laying the bet is not buying shares. What they are wagering on is the movement that they expect the specific stock to make.

Need an example? Let’s say you have been monitoring twenty to twenty-five stocks for a few weeks. You believe that one in particular is going to drop significantly over a single day or set period of time. You contact one of many spread betting companies and discuss your options for placing a wager. Should this stock decrease in cost or value, the gambler is likely to win their wager. This is far different from actual investing and trading because losses are not sustained by a stock or trade losing value, instead the savvy gambler makes money if prices drop.

This is one approach that many IT, financial, and insurance experts are using to enhance their portfolios in the current market conditions.  Because the number of agencies taking financial spread bet has increased, the spreads have come down. For instance, over the past decade the standard points spread for an index like the FTSE 100 was around ten points, but currently that has dropped to roughly a two-point spread.

It is significant to note that financial spread betting is “off” of the exchange and that the contract is drawn between the client and spread betting companies. This means many things, including:

1.    Typical spreads are quoted per the agency. The sizes of the spreads will vary for many reasons, but usually due to:

a.    A wager placed outside standard market hours

b.    A wager with guaranteed “stop” losses in place – which means that the agent automatically closes the bet should the spread move significantly against the gambler’s specified range

c.    The time in which the wager is laid – for example spreads may be less beneficial to those placing a wager during the first hour of the trading day

2.    Spreads will be quoted in a variety of ways, including “tic”, point size or “pip”. Basically this adds up to the stake which is usually per point movement. there is also option for spread betting free trades, remember to check it out.

3.    Regulation is done through the FSA or the Financial Services Authority and not the Gambling Authority.

4.    Profits are free from Capital Gains Tax, but anyone who relies on this system for their primary source of income may be required to pay Income Tax on winnings.

5.    Minimum stakes or wagers are a standard requirement with almost all spread betting companies.

Are the brokers/bookmakers reducing our wealth?

Some of us have been involved in spreads now for some time and the market is booming. New spread betting firms are opening all the net, not just in the EU but across the globe (with the exception of the states who don’t want to play – yet. Sports spreads fine, but not financials, why who knows??).

However, some of the spreads on the companies that aim at the newbie spread trader are a little wide. Also, it they are bleeding them more by not allowing the trader to place tighter stops.

Which Spread Betting Broker?

There are numerous features available in spread betting account platforms. Each broker will be different and although they all provide prices for you to trade, many spreads, order types and other account features may differ. For instance one broker may need you create a ticket for the instrument you wish to trade before executing the position, and another broker may have one click execution.

Stop losses and the automatic placing of them also varies between brokers. There’s a platform I used recently where the stop loss on any position opened is placed at the maximum distance from entry which your account balance allows. This covers them, and you, from having a losing position to go negative and lose more than the original deposit into your spread betting account. This idea (as long as you remember to adjust the initial stop to something less risky) is great for allowing fast trading on prices. There are brokers whose systems will not let you trade until you have typed in a stop loss level on every ticket you open. If you are trading when markets are moving fast this type of order can stop you getting the price you intended to trade at. On the flipside of this, it can be useful to help manage your risk but not allowing you to trade until you have thought about exit levels.

Before opening an account ask yourself , “what do I need from a new spread betting account?”. Then list the main things which would allow you to follow your trading strategy properly. If you need charts add this to your list, if you need fast execution add this to your list also. However you might use a standalone charting platform, so the account may not necessarily need to have charting as a main feature.

Once you have your short list of features needed you can then browse through some of the well known brokers and open some demo accounts. Usually a demo spread betting account will be a fully functional working version of a real account but loaded with a virtual balance to place “demo” trades with. Using a demo will give you an idea if the broker has the correct features you need to follow your trading strategy.

Once you have selected the spread betting broker whose account has the needed features you can usually open a full account without depositing funds. You can then check that the platform is the same before funding and commencing with your trading.

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