There are plenty of reasons why spread betting is such a popular choice of investment over other more complex financial trades like futures, options and contracts for difference. The winnings are tax-free – you don’t have to pay income taxes, capital gains or stamp duty. What this means is that spreading the bet turns out to be cheaper than buying trades for stocks that you keep up to a few weeks. Note that for longer periods, costs for spread betting can add up.
But in general, spread betting has the potential to give you massive returns on very small investments. There are also no delays in routing orders, as is the case with shares bought via an exchange.
But what do you do with your leftover betting budget? What is the most profitable and cost-effective way to spend this leftover? Let’s take a look.
Spending Spread Betting Leftover Budgets
For those new to this, spread betting is taking a position on whether or not a product’s value will fall or rise after the bet has been placed. Such a betting scenario may seem based on luck or chance, but that is not the case. Insiders know that spreading your bets is the best way to beat lackluster markets.
- Know the difference between a spread and a stake. Stake is the money you’re ready to gain or lose with downward or upward swings of the product you’re betting on. Spread is the difference between your selling and buying rates. Since your aim is to make money with your leftover spread, you should have very clear ideas on how to budget your spreads.
- Try to limit yourself to a few or a single market when you’re starting out. You could focus on trading only in equities or forex, for instance. Teach yourself through trial and error, and learn how the market moves and how prices move. Such a simple strategy can be a very profitable one, as you develop a relationship with the market.
- Have a very clear notion of when to hold on and when to short sell. If the fall seems to steep and you think you can’t reach the spread, you should be ready to short sell.
- Always use a STOP-LOSS. Some spread betting companies in fact will insist that you do so. Knowing where to place a STOP is the harder choice, and depends on market volatility and how much you don’t mind losing. You may set it to 10 percent or 20 percent from your entry.
- Buying on margin is another very useful and critical option. Your endeavor should be to open with a deposit of only a small percentage of the overall value. This will protect you from overexposure to a volatile market.
- Keep your risk as low as possible, especially if you’re just starting out. A safe recommendation of 1 percent risk per trade is a good place to start. It is always recommended that you know how much you stand to lose on a spread bet.
- After spread-betting for a while, avoid relying on a single currency or product. Instead, look for packages that include commodities, foreign currencies and indices so that you can spread the risk across industries.
- Keep yourself informed about the market and other relevant news. Knowledge of current market trends and political factors that could impact the market (and consequently your stake and spread) is essential if you want to enjoy the highest profits. Read the newspapers, study each company, hone your instincts and nurture an appetite for risk.
- Look for spread betting companies that are not just reputed but offer reasonably good bonuses. This is especially important for beginners. Live demos are useful features offered by many companies who take beginners through the ropes.
- Past performances are not the best guides for future trends of scripts, commodities or currencies. Your focus should be more on studying the present company or market trends.
- When looking at online companies like CMC markets, you’ll find that many don’t take deposits at the beginning. However, you should only go with the services that have goodwill and credentials. Also only employ services that offer you tax-free trading.
- It is recommended that you look for betting options starting at low spreads. This could even be a number like 0.60.
- Work on your trading psychology. This means getting a hold of your emotions of fear and greed, that could be costing you money as you sit on losses with hopes of breaking even, have a compulsion to always keep trading and other such behaviors.
- Finally, don’t get disheartened by initial losses. A cautious start and tenacity are what keeps many full-time professionals in the spread betting arena. As well as an appetite for the thrills of taking risks.