Financial Spread Betting (Part 1)
The term itself sounds dubious but financial spread betting is a legal and very profitable tool you can use to earn money. Financial spread betting is similar to other kinds of financial speculation but differs in that ALL the profits you get from it are tax-free. So if you hate having to pay taxes on your investments then you should definitely consider spread betting.
As the term implies financial spread betting is also similar to fixed odds betting, but differs in that your profit or loss is not fixed. In fixed odds betting you stand to lose a certain amount of money depending on the amount you bet and the odds offered by the bookmaker. For example 10-1 odds on a certain event will make you win or lose $20 for a $2 bet.
In spread betting the money you make or lose is not known until the moment you choose to liquidate your money. For example if you decide to buy the FTSE 100 Index at $1 a point using a spread bet and the index rose by 100 points after you bought it then you decide to sell then you make a clear $100. If however the index goes down by 50 points and you decide to sell then you lose $50. The thing with this is that the index goes up and down so that selling too early might make you lose profit if the index rises again after going down or rises even more after you sell. Of course selling early can also prevent further losses if a downward trend continues. Selling early on to prevent losses when you think or feel that the market will go down before it does is called “short selling”. Market savvy people do it all the time ensuring that they don’t lose heavily on any of their investments.
Spread betting companies do not charge commissions. Instead they make money by offering products at a higher price than the original bid. Much like buy and sell. Spread bet brokers always quote two way prices which actually contain the bid price and the offer price. The bid price is the price at which you wish to buy a financial product while the offer price is the actual price that the broker will charge you for buying it. For example if the FTSE index 100 is at 4000 spread bet brokers will quote you a 4000 – 4004. At $1 per point you actually buy a $4000 worth investment for $4004. Of course you only do this because you have determined that the market is about to rise and expect the FTSE Index to go much higher, or at least higher than 4004.
When the market has risen you can then sell your assets by contacting you spread betting broker and inquiring about the present state of the market. If the FTSE index is at 4100 your broker will of course quote a two way price of 4100 – 4104. You can then sell at the bid price of 4100 and will have made a total of $96 in the end.
Financial spread betting might sound easy, but it’s definitely not for beginners. You need to have a solid trading background and understand the foundations of financial spread betting before you start.
