Spread betting is often dropped casually into the traditional investment mix along with trading stocks and shares. However, there are some key differences in the process of spread betting which really differentiate it’s offering. If done right, spread betting is one of the quickest ways for the private investor to cash in on market speculation and allows you to use your financial hunches to reap some healthy rewards!
As with traditional investing, spread betting requires a great deal of research and analysis in order to source your opportunities. However, there are some important differences between spread betting and investing in the traditional stock market. Here we have outlined 5 key points of difference:
1. You Don’t Ever Own Any Shares
Spread betting involves making a hypothesis on the movement of an asset and placing a bet on the direction you think it will go. Therefore, unlike investing in the stock market in the traditional way, you will never actually own the asset or shares you have chosen. This in turn affects your cost of entry as you will not be incurring the same trading costs as you would when buying a share.
2. Spread Betting is Tax Free
As spread betting is technically classed as gambling, then providing that spread betting isn’t your sole form of income then it’s completely tax free which means your profits wont be cut by capital gains tax or stamp duty. Additionaly, unlike investing spread betting does not incur a transaction charge when you ‘cash out’ therefore this means that your not losing out on any of your winnings.
3. Long or Short
A major difference between investing and spread betting is that the latter allows you to profit when the market is down. Spread betting allows you to ‘go short’ which means that you are essentially betting that the company or share will decrease in value. Providing that you predict this correctly, this means that one mans’ loss is another mans’ gain!
It is worth noting that there is a large element of risk involved in spread betting; your loss potential is unlimited as you cannot set a stop and your losses aren’t limited to your stake.
4. 24 Hour Access
When investing in the stock market the traditional way you are restricted to the opening hours of your chosen stock exchange, for example 9:30 – 16:00 for the NYSE. This can make it tricky if you have a 9-5 job and want to check your stocks during the day. However just like other forms of ‘gambling’ spread betting allows you to trade 24 hours a day 7 days a week. This means you can carry our your bets from the comfort of your arm chair after a hard days work.
In fact looking over your spreads has become much easier in recent years with the introduction of spread betting trading platforms which provide easy access to your research and allow you to place a bet from a laptop or even through a mobile app. One example of this is the CMC Markets trading app where you can quickly view their live market calculator and even receive notifications on your current trades so you know when to ‘cash out’.
5. You Can Bet On a Whole Range of Markets
Unlike traditional investing, spread betting allows you to bet on a whole range of markets including bonds, interest rates and currencies. However, one of the most popular forms of spread betting is actually sporting events.
Thinking of trying it out as an additional source of income? Spread betting is an interesting experience as things can move quickly when betting on the movement of an asset. With this in mind I recommend starting your adventure with paper trading or opening a demo investing account on a reliable platform to get to grips with the process before investing your funds.