Why use SpreadBets?

Why use Spread Bets?  Advantages/Disadvantages

I think the tax benefits are probably the largest single benefit over share dealing, the avoidance of stamp duty and capital gains.

Other obvious benefits are the leverage, allowing you with a relatively small amount of money to take a larger position than you would ordinarily be able to do with share trading, and the ability to go long or short, i.e. sell shares you haven’t got in order to take advantage of any downward moves in the market.

Another significant advantage is the ability to short sell. If I look at the markets in their current fashion they tend not to be one dimensional, whereas physical share dealing is inherently one dimensional, you buy and hold. Now some people come to me and say: ‘I’m waiting for the market to go down before I buy’. I’d argue why not short sell it while it’s going down, try and make a little bit of money, and then buy more physical shares if you’d rather on the way up. Also technology is important, physical share trading platforms are infantile in their simplicity compared to the platforms being offered by spread betting companies.

Pros:

- Cheapest way of executing short term trades. (the spread is smaller than the commission would be for most private clients working with ’small’ bankrolls)

- Doesn’t have to be leveraged so you can put a hard limit on potential losses.

- Can work with very tiny to very large bets depending on your bankroll.

- Tax free in the United Kingdom and Ireland.

Cons:

- Can turn out to be expensive if you’re going to be holding a position for over 6 months (i.e. every night your positions will be ‘rolled over’ and the bookie will take his spread again).

- Potentially unlimited if you use leverage (which is why you need to use stop loss orders)

Spread betting may not be right for everyone.  It is important that you feel comfortable with the process and with the risks involved before starting to trade.  Trading is about 10% knowledge, and 90% application. Learning how to trade is only the start. Learning how to control you own fear and greed, once you start making or losing real money, is the real key.  Even more spread betting and trading in general take a certain mentality in order to deal with such unpredictability or volatility and on numerous occasions financial loss.

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