Financial Spread Betting Platforms
Financial spread betting can trace back its roots to the United States during the early 1940s; however, the concept of spread betting is currently illegal in the US and several other countries. Financial spread betting platforms are only legal in the UK and a select few countries in the EU zone, which makes the spread betting market highly targeted for a particular group of investors.
Spread betting has several unique advantages that make it an attractive proposition for investors with a high-risk appetite. The high-risk nature of the investment can also act as a deterrent for investors who are apprehensive about using high margin and leverage. Spread betting is a leveraged product and can result in losses that can be greater than your initial deposit.
What Is Spread Betting?
Spread betting is a financial derivate product that allows a trader to speculate on the financial markets using margin or leverage. Conventional stock trading involves buying or selling shares at the market price, which requires not only a lot of initial capital but also includes other associated fees of trading such as commissions and spreads. The huge barriers of entry prevent small and retail traders from entering the market for the short term.
Spread betting allows a trader to invest a fraction of the required capital by using leverage, and the profits and losses are determined by the movement of the markets. All financial instruments traded using a spread betting platform will have a simple market spread, which is the amount that is paid to the broker as fees to invest in the spread betting markets. A small movement in either direction of the market can result in significant profit or losses, which is why spread betting is considered to be a highly dangerous alternative to traditional stock trading.
Spread betting offers a broad range of financial instruments that include currency pairs, commodities, stocks, indices, and even bonds. The margin requirements vary between 2% to 10%, which allows traders to invest in spread betting using a very little investment capital. Traders should always understand the legality of spread betting in their country before choosing to invest your money in this highly risky market.
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Differences Between Online Spread Betting, FX Trading, & Binary Options Trading
Spread betting is very similar to FX trading regarding trade execution and profit/loss potential. While Forex trading is a global financial market that involves trillions of dollars’ worth of transactions on a daily basis, online spread betting is a specialized product that caters to a relatively smaller group of retail as well as institutional traders. Spread betting has several common traits that are associated with gambling, which is why spread betting is considered to be illegal in several countries.
Forex markets are also highly regulated by several regulatory authorities and are an accepted form of financial market in a majority of countries across the world. It is also relatively easier to find a Forex broker as there are thousands of FX brokers in different parts of the world. In comparison, there are less than a hundred spread betting brokers in the world, which severely limits the freedom of choosing a broker according to a trader’s preferences.
On the other hand, spread betting is entirely different to the Binary Options trading model. Binary trading involves making a prediction on the direction of the market and the profit or loss potential is fixed. Binary traders cannot lose more than their investment amount, and there is no chance for a negative account balance. That said, there are a few similarities between spread betting and Binary trading. Both binary options, as well as spread betting, are considered to be an alternative form of gambling by many financial experts, and both involve huge risks. While FX trading is also deemed to be a risky market, traders can reduce their risk exposure by lowering the leverage or margin. Spread betting and Binary Options are hugely risky propositions as the investor can lose their entire trading capital with the matter of a few minutes.
The Best Spread Betting Platform In The Market
Due to several issues related to the legality of spread betting in different parts of the world, the best spread betting platforms are situated in mainland Europe, especially in the UK. Several big names in the industry such as Barclays, FXCM, IG, ADS Securities, London Capital Group, CMC Markets, eToro, and other financial brokers offer unique trading platforms that are catered to providing spread betting services to several investors in the market. Most of these brokers only entertain clients from certain countries where spread betting is legal. Therefore, not all traders can open an account at a spread betting firm.
Spread betting platforms are similar in design and performance to conventional platforms that are used in FX and commodities trading. Some FX brokers also use their existing Forex trading platforms to include their spread betting services as well. Therefore, when it comes to choosing the best spread betting platform in the market, traders have the option of looking up to the top names in the industry that are situated in the UK as well as the EU.
Spread betting platforms are designed according to a broker’s service offerings, and the main difference between the different types of platforms is the way in which trading works. Brokers can have different margin requirements, various types of spreads, different types of trading instruments, and several types of tools that can help a trader to perform a thorough analysis of the markets. Brokers can either offer a fixed or variable spread on all financial instruments, while some brokers are known to increase margin requirements during highly volatile market conditions.
What Are The Different Aspects To Consider While Choosing A Broker?
Regulation & Safety Of Funds
Regulation is at the top of the priorities list when it comes to choosing a broker. A spread betting company should have a good reputation for fair and honest dealings with their clients, and should preferably be regulated by any one of credible regulatory agencies in the financial markets. Every genuine broker should be able to guarantee the safety of their clients’ funds by ensuring that all funds are available for withdrawal as soon as the traders request them. Brokers should also keep a trader’s capital in segregated accounts and offer an excellent insurance package to compensate traders in the event of broker insolvency due to any legal, financial, or any other types of disputes.
A Good Trading Platform
Trading platforms should be able to perform seamlessly and should have no visible faults such as downtime, platform errors, or any other forms of glitches that prevent traders from enjoying a good trading experience. The risk associated with spread betting is huge due to the inherent nature of the markets and the available leverage, which can lead to drastic consequences if the trader is not careful with the platform. Faulty platforms can coerce traders into opening losing trades, which can ultimately lead to an account blowout or even worse, a negative balance.
Spreads & Margin Requirements
Brokers offer either a fixed spread or a variable spread that change according to market conditions. Sometimes, having a variable spread can either be a good or a bad thing. Under normal trading conditions, variable spreads can go lower than fixed spread model, which enables traders to lower the cost of their trading and get out of trades faster. However, during highly volatile trading sessions, spreads can shoot up, which can lead to margin calls if the position goes against a trader.
Margin requirements also play a significant role in deciding the position size and the profits. Lower margin requirements enable traders to enter the market using a small capital, but on the downside, the high leverage can also result in massive losses. Typically, spread betting platforms offer a margin of anywhere between 2% and 10%, while some brokers are also known to increase the margin requirement for larger accounts. Ultimately, using leverage is dependent on a trader’s risk appetite and his trading strategies.
Spread Betting Shares & Other Financial Instruments
Spread betting provides a range of financial instruments that allows spread betting in shares, currency pairs, indices, commodities, and even housing prices. Modern spread betting platforms incorporate the widest array of financial instruments that offers traders a chance to diversify their investment portfolio by choosing financial instruments from anywhere in the world. Spread betting is also one of the few financial derivative products that incorporate the maximum number of instruments in their portfolio, which is preferred by traders who are looking to make quick gains in the highly volatile financial markets.
Spread betting shares are highly popular among spread bettors due to the relative ease of trading some of the major stocks in the world without having to buy or sell actual shares of a company. Buying or selling a company share will require a trader to invest money about the price of each share, which runs into hundreds of thousands or even millions of dollars. In spread betting, however, traders can invest in these shares by merely depositing a few hundreds or thousands of dollars into their brokerage account and control a significant stake using leverage.
Almost all the currency pairs and commodities in the market such as oil and gold are also traded through spread betting platforms. The ability to invest in a majority of financial instruments provide spread bettors a truly unique opportunity of exposing themselves to some of the key financial markets in the world.
Tax Benefits Of Financial Betting
Financial spread betting is completely exempt from capital gains tax or stamp duty in the UK, which is why several traders in the UK and neighbouring regions indulge in spread betting rather than investing in other forms of financial markets. The risk-free status of financial spread betting has indeed become a game changer for several high-risk investors who can now enjoy the multiple benefits of investing without worrying about a high investment capital, associated fees, or taxes. Some investors deliberately set up shop in the UK to enjoy a tax-free status by diversifying their investment portfolio into financial spread betting.
Although spread betting is legal and tax-free in the UK, traders who do not reside in the UK might be subjected to tax laws of their home country. While spread betting brokers are highly selective when choosing clients, there are several exceptions where traders residing out of the UK can open a spread betting account with a broker situated in the UK. In this case, it is the duty of a trader to ensure that spread betting is legal in their jurisdiction, and should take care of all taxes and other fees that are applicable in their area of residence.
Are Spread Betting Platforms Suitable For All Traders?
Spread betting is indeed reserved only for a select few traders, but even then, this market is a great option for traders who do not have the immense capital required to trade in the traditional stock markets. Spread betting offers the undue advantage of starting with a small capital, which not only reduces the risk of losing vast sums of money but also helps traders to consider high-risk alternatives to supplement their trading income.
The tax-free status of spread betting in the UK along with lower cost of trading helps traders to minimize their capital outflow, which is also a contributing factor towards the overall success of a trader. By practicing safe and smart trading decisions, a trader can indeed find great success in the spread betting environment.