Online spread betting firms has made shopping around for the best deal very easy. Many traders like to join more than one spread betting firm in order to get the best prices for particular trades, although for the main I prefer to keep all my trades under one house as it simplifies things considerably for the purposes of record-keeping and the margin requirement.
One of the most important factors to consider when picking a spreadbetting firm remains the bid-offer spreads, i.e. how ‘tight’ the spread is. The smaller the spread the less money you lose between buying to open and selling to close (or vice versa).
Providers have one key advantage on spreadbetters. The spread betting provider owes this advantage, to amongst other things: The spread between ask and bid prices they offer, the various charges they impose, the markets and stock they allow you to trade and of course they count on the volatility and complexity of stock and currency markets.
Spread betting firms derive a significant portion of their income off the spread they offer on financial products. The race to cut spreads confirms just how competitive the industry is becoming. The internet is over subscribed by spread betting comparison sites that essentially just throw numbers about: spreads, margins, %-this, %-that etc etc. But what does it really mean for you, the soon-to-be spread betting client?
The Bid Ask difference – known as the spread – is traditionally how the spread betting providers make their money. Remember – in this saturated market customer acquisition is the key factor facing the spread betting houses. Indeed, thanks to this competition, spreads have been narrowing in the spread betting industry for years giving the spread betting customer a helping hand.
Spread betting providers will continue to make money on financing charges, the interest cost that customers pay each day on the total value of their positions.
We can tell you there is very little to differentiate between the top players in the spread betting space when it comes to the numbers. To see a spread bet company claim it is the leader with its 0.8 spread on the FTSE 100 means little. Because there is another company offering 0.75 and everyone else is offering 1 point.
Other factors to consider are:
– The reliability of the trading platform, but I don’t really find this an issue.
– Do they do telephone trading? E.g. ETX Capital only accept over the internet. I never thought this would be a problem, but when you suddenly need to open or close a trade and you don’t have access to commodity broker it can become a major issue.
– The range of products. All of the spread-betting firms recommended on this site do a good range of commodities as well as the major currency pairs (EUR/USD, GBP/USD, USD/JPY). Check which indices the firm allows you to bet on as well – a good choice for a wide range of markets is IG Index – this site even allows you to hedge against a fall in your house price by selling average house prices in your region.
– Margin requirements. IG’s margins are known to be on the upper scale for instance while other providers may require smaller margins.
– Minimum trade size. This is worth considering when you first start out and Finspreads allows you to trade from as little as 1p per point during an initial sign-up period (they also provide you with a little free training and even a free swiss watch for new account openers!). Ayondo even allows you to trade in fractional sizes which can come in handy at times. Most sites allow you to trade at £1 a point which is fine.
– Types of account. You basically get 2 types of account: deposit (where all your money is in your customer account) or credit (where you can play with money that isn’t really yours). I prefer deposit accounts as this simplifies signing up considerably and you are unlikely to lose more money than you can afford (in the worst case scenario).
– Types of stop-loss and whether they are mandatory. It is also worth looking at how much more expensive it is for a guaranteed stop loss. Incidentally, Ayondo offer free guaranteed stops up to a certain stake on all the markets they quote (except individual shares).
– Do they pay interest on your account when it is in credit? Also do pay attention the overnight financing rate – most providers will charge you on the full exposure amount including the amount you put up as margin. I think this is an unfair practice since the amount you deposit is not actually being lent to you.
When choosing your spread betting provider, it is important to test drive the platforms before opening a live account. Some platforms are relatively easy to use but are limited in functionality and charting features, whereas others can be quite complex to set up.
Whichever spreadbetting firm you choose I would recommend picking one and sticking with it. Whatever you decide to trade make sure you get a service with tight spreads coupled with fast-trade executions.
What we do here is trade with the companies we talk about. We give real thoughts and fundamentally relevant insight, such as customer service, reputation, and issues to be aware of. This is the kind of insight into spread betting companies that is clearly lacking with our competitors.