For UK residents, spread betting on financial markets is filled with benefits. Of course, wherever you find reward, risk is seldom far behind. What are the benefits of spread betting? Let’s take a quick look at these risk and reward factors and then I’ll tell you a little about my own personal spread betting experience.
Why Spread Bet?
I believe that spread betting on financial markets is an excellent way to get started in trading, provided you educate yourself fully on the implications of what you are doing beforehand. Spread betting provides a highly accessible way to trade diverse financial instruments without having to deposit large amounts of capital. Leverage is, of course, a double edged sword: when trading highly leveraged instruments, you risk to lose far more than your initial investment.
With the right spread betting broker you can expect tight spreads, quick fills and low slippage. Spread betting companies make all their money in your spread, so there is no other commission to pay. This is unlike conventional trading where you’ll pay a commission on each side of the transaction. The best benefit for UK residents is the tax free nature of spread betting: you don’t own the underlying instrument so are free from capital gains tax and stamp duty. Of course tax treatment can change in the future.
My Spread Betting Experiences
I’ve always been interested in how people can profit from movements in share prices. I was fascinated by stories of New York taxi drivers making a killing while trading from laptops in their cars during the dot-com boom. If only it were always that easy!
However, I’d always lacked the necessary capital to get started in share trading. I recall saving up to be able to start day trading just when the SEC introduced the pattern day trading $25,000 minimum equity rules in 2001. At around this time I heard about spread betting through a couple of work colleagues and jumped straight in. The benefits that I’ve described above made this an easy decision to make.
I started out with FinSpreads as they allowed you to trade for as little as 1 pence a point. A quick check of their website shows that this has gone up to 10 pence a point since then, but it still represents a very safe way to cut your teeth in the markets and make a few mistakes that don’t prove too costly. Eventually I moved over to CMC markets as I was attracted by their MarketMaker execution platform, tight spreads and wider range of instruments.
Over the years I’ve spread betted on equities, forex, indices and commodities. I’ve also traded equities, futures and options through conventional trading. I’ve found that the biggest battle in my own trading was finding the right instrument and the right time frame to suit my own innate mentality. This battle was made all the worse when the type of trading that I wanted to do is not the type of trading that I was most suited to.
Personally speaking, I’d love to be a day trader of US equities. I’ve tried day trading with both spread betting and direct access level 2. I’d love to be a good day trader, but I have to accept that I’m not. I’m completely unable to sit on my hands and wait for those golden opportunities and instead I over trade in search of something to do.
I am suited to swing trading US stocks and this works as a perfect fit with spread betting. My own personal style is centred firmly around technical analysis of price action to find high probability set ups that should reap rewards in a five to ten day period. Coupled with tight stops and a rigorous money management strategy, this works for me. I make the majority of my trading decisions on a daily chart instead of the intraday and this helps me keep my trigger happy impulses at bay.
My journey in trading has been as much about discovering my own personal strengths and weaknesses as it has been about learning how to read support, resistance and candlestick patterns. I hope to share some of these experiences with you over the coming weeks.