View from the dealing floor. David Hales works on IG’s dealing floor in London. To find out more about spread betting visit: www.ig.com/uk/spread-betting
Financial spread betting has a reputation for being a bit of a rollercoaster ride for those with no aversion to risk. While this might accurately describe a subset of spread bettors, it does not define the breed, and there are those who take a more measured approach, often with a lot more success.
Strip away the stereotypes and financial spread betting can be a rational investment tool. It is tax-free in the UK, both in terms of income tax and capital gains. It also offers extraordinary diversification by giving access to a vast array of asset classes and exchanges traditionally out of reach for small investors. IG offer vanilla equities, indices, commodities and forex, as well as options and binary options on those markets.
Spread betting is a leveraged product so you only have to put down a small deposit for a larger market exposure. Unfortunately, there being no such thing as a free lunch, spread betters need to contend with additional margin requirements should the market move against them. Since all holdings are continually marked to market, a substantial running loss across an account can result in positions being closed. This requires the spread bettor to be correct, not just in the long-term, but also over the life-time of the holding if they do not hold sufficient funds on account.
Let’s be honest, most of us aren’t blessed with such perfect foresight, so risk management is a key component of successful trading when using leverage. You should know the notional value of the asset you are trading, this is simply the ‘size per point’ multiplied by the price of the market. For example in the case of a £5 per point trade on the Dow Jones at 14950 this would be £74,750, is this an appropriate holding for you? It is therefore prudent to hold more cash on your account than the minimum deposit required to maintain this position. If this is too muchexposure, then reduce your bet size. And always try to avoid trading in and out of positions based on emotional response.
Financial spread betting offers a wide range of trading opportunities but it’s vitally important to understand your exposure, or, you risk losing more funds than you deposit to the account.
Spread bets and CFDs are leveraged products. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
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