Spread betting is a type of investing where participants do not own the asset they are betting on, like a stock or commodity. Instead traders speculate on whether the price of the asset will rise or fall depending on the markets and the charts provided by their broker, like ETX Capital.
Spread betting was first “invented” in the 1940s in Chicago, although it is currently illegal in the United States. However, spread betting (or CFD trading) is a legal form of investing in other countries, like the UK.
How Do You Make Money with Spread Betting?
You can earn money on spread betting depending on the spread between the price at which you buy and sell the asset. Spread betting companies do take a share in the profit of the bet.
Additionally spread betting is easy for most people to understand and it doesn’t take a lot of capital to get started in spread betting. Generally the minimum deposit is £100.
Profits from spread betting in the UK are tax free unless this is your only source of income to support family living.
The markets are also open 24 hours a day during the week, which is a huge advantage over traditional forms of investing, like the stock market.
Managing Risk
Spread betting can be quite risky due to the high levels of leverage. In fact it is possible to lose more than just your initial deposit. But there are some ways you can manage risk and limit potential losses.
Stop loss orders are one way to manage risk. You can set a stop loss order so when an asset drops below a set price your trade will automatically be closed out. However, it is possible for the price to fall below the stop loss order when the market is highly volatile and values are changing quickly.
Spread betting works best as a long term investment to help offset the costs involved with keeping the spread bet open.
If you’ve ever considered spread betting, make sure you weigh the pros and cons carefully before getting involved in this type of investment. The significant risk involved is a factor that prevents many people from participating in spread betting. Seeking the advice of a financial advisor before committing to any type of investment is always a good idea.
Have you ever been involved in spread betting? Did your investment pan out?
