• Home
  • Authors
  • Write for us
  • Advertise
  • Contact
  • Privacy Policy
  • Terms and Conditions
Thursday, April 15, 2021
No Result
View All Result
ABC Money
PR Fire Press Release Distribution
  • News
  • Business
  • Economics
  • Finance
    • Investment
    • Tax
    • Mortgage
  • Property
    • Utilities
  • World
  • Technology
  • Fashion
  • Health
  • Holidays
  • News
  • Business
  • Economics
  • Finance
    • Investment
    • Tax
    • Mortgage
  • Property
    • Utilities
  • World
  • Technology
  • Fashion
  • Health
  • Holidays
ABC Money
No Result
View All Result
Home Finance

Is Spread Betting a Better Way to Make Money on Stocks?

by Debora Marcus
11/03/2021

The average casual investor thinks of buying shares as the primary means of investing in stock markets. This is not without reason. Most people who play the stocks do so by actually buying shares. Still, there is another way to go. Rather than buying the underlying security, investors can bet on its movement. This form of investing is known as spread betting and has tax benefits in the UK.

Spread betting is pretty big here in the UK. It is so big, in fact, that spread betting platforms for UK traders abound. But is this form of investing better than actually buying stocks and shares? It has its upsides, but spread betting has its downsides as well. You can make and lose money – just as you can buying securities.

A Basic Definition

In a generic sense, spread betting is betting on the outcome of a particular event based on a spread tied to some means of measurement. Spread betting in the stock market is essentially betting on the movement of a particular stock. You place a bet based on whether you think the price will increase or decrease over a set amount of time.

If you bet correctly, you make money. Bet incorrectly and you lose. It is quite simple in principle. One of the advantages of spread betting is that you can get into it with less money than would otherwise be required to purchase the security in question.

How Spread Betting Works

Spread betting is common on stock markets. You can also bet on commodities, currencies, and even fixed-income securities. The type of security becomes irrelevant because you are not actually purchasing it. Here’s how it works:

You choose a stock you are interested in. You decide whether you think the price is going to rise or fall over a set amount of time. You then place a bet on that decision. Let’s just make something up – the Generic Stock Company (GSC).

GSC is currently trading at a bid price of £100. You believe it’s going to fall to £90 over the next several days. You decide to bet £1 on every point below the £100 mark as represented by the ask price. Then you wait. If the ask price falls to £95, the difference between the original bid and the current ask is five points. Multiply those five points by your £1 bid and you have made a profit of £5.

Profit and loss are determined by multiplying your bet by the point difference in either direction. If GSC were to increase to £105, you would have lost £5.

RelatedPosts

How Long Does It Take to Repair Credit?

3 Main financial things to check before you buy a new house in 2021

Surprising Benefits of Bitcoins and Opportunities

HOW TO BECOME AN INTRODUCING BROKER AND BUILD YOUR BUSINESS?

Load More

Obviously, people who spread bet as a means of making money in the stock market generally deal with much larger sums of money. This is important because spread betting platforms require minimum deposits based on margins.

How Margins Work

In a traditional stock market investment, you might borrow money from a brokerage in order to buy securities. An investor typically has to put some of their own money in too, similar to making a down payment on a house. The difference between the investor’s money and the amount borrowed is known as the margin.

At any time, the brokerage could call the margin. That means the investor would be required to either repay what was borrowed or deposit additional funds to raise their account value.

A margin in spread betting is a little bit different. Rather than being money contributed in conjunction with a brokerage loan, it is simply a percentage of the security’s value. So let’s say your broker’s margin on GSC is 10%. Before you can place your bet, you would be required to deposit £10 – i.e., £100 x 10%.

Volatility Rules the Day

There are people who love spread betting because it doesn’t cost them a whole lot, comparatively speaking, to get in on the action. A 10% or 20% margin is a lot more doable than paying full price for a security. The downside is volatility. It rules the day in the spread betting arena.

At issue here are margin calls. Inexperienced investors who do not know what they are doing could lose a bundle by taking positions they cannot possibly support with limited deposit accounts. For this reason, experts suggest not putting more than 2% or 3% of your investment funds into spread bets.

Along those same lines, spread betting firms have been known to protect themselves during periods of excessive volatility by widening their spreads.

More About the Spread

Spread betters appreciate that there are no commissions on spread bets. Instead, brokerages make their money on the spread. The spread is the difference between the bid and ask price. Using the previous example, imagine GSC’s bid price is £100 and its ask price is £102. The spread is 2% of the ask price, or £2.

If you are thinking GSC will fall, you place your bet on the ask price. The difference between the eventual ask and the starting bid is the spread on which your profit is derived. The brokerage earns the difference. If you think GSC will rise, you place your bet on the bid price. The difference between the eventual bid and the starting ask is the spread on which your profit is made. Again, the brokerage makes money on the difference.

Big Gains and Losses

As for whether or not spread betting is a better way to make money in stocks, that really depends on your appetite for risk. The fact is that spread betting is open to significant gains and losses. You could make a bundle just as easily as losing your shirt. But you have to be willing to take a significant risk.

The danger of spread betting is its limited amount of time. You are betting on movement over days or weeks. On the other hand, buying a security is open-ended. You can hold onto it for as long as you want. That way, if its value falls tomorrow, you can hold until it regains those losses and earns more. You can hold for 20 years if that’s what it takes to derive the profit you’ve been hoping for.

While it’s possible to take a long-term position with spread betting, doing so is not necessarily in your best interests due to the ever-present potential of a margin call. Most spread betters deal in short-term contracts lasting no more than a few days or weeks.

Yes, you can make good money spread betting. You can also lose big. In the end, it boils down to your appetite for risk.

Previous Post

Coronavirus Vaccines; What You Need to Know

Next Post

How to Learn Azure on my Own?

Related Posts

How Long Does It Take to Repair Credit?
Finance

How Long Does It Take to Repair Credit?

15/04/2021
3 Main financial things to check before you buy a new house in 2021
Finance

3 Main financial things to check before you buy a new house in 2021

15/04/2021
Surprising Benefits of Bitcoins and Opportunities
Finance

Surprising Benefits of Bitcoins and Opportunities

13/04/2021
Next Post
How to Learn Azure on my Own?

How to Learn Azure on my Own?

The Significance of SSL Certificates In Web Security

The Significance of SSL Certificates In Web Security

Top 5 Hair Transplant Clinics In Turkey In 2021

Top 5 Hair Transplant Clinics In Turkey In 2021

Latest News

Changpeng Zhao Confesses His Fortune Lies Almost 100% In Digital Assets

Changpeng Zhao Confesses His Fortune Lies Almost 100% In Digital Assets

10/04/2021
Design Points to Keep in Mind While Customizing Yard Signs

Design Points to Keep in Mind While Customizing Yard Signs

15/04/2021
BPO Philippines: The Digital Economy Drives Growth

BPO Philippines: The Digital Economy Drives Growth

15/04/2021
How Long Does It Take to Repair Credit?

How Long Does It Take to Repair Credit?

15/04/2021
Which One is a better choice: Gummies or Delta 8?

Which One is a better choice: Gummies or Delta 8?

15/04/2021
Benefits Of Choosing A Good Online Payroll Management Software

Benefits Of Choosing A Good Online Payroll Management Software

15/04/2021

Social

Contact

For editorial enquiries:

editorials@abcmoney.co.uk

For advertising enquiries:

advertise@abcmoney.co.uk

Top Topics

  • News
  • Business
  • Finance
  • Property
  • Technology
  • Investment

Guides

  • Best UK Bridging Loans
  • Best UK Secured Loans
  • Best UK Commercial Mortgages
  • Best UK Business Loans
  • Best UK Payday Loans
  • Best Sites for International Money Transfers
  • Best Press Release Distribution Service

Social

  • Home
  • Authors
  • Write for us
  • Advertise
  • Contact
  • Privacy Policy
  • Terms and Conditions

© 2020 ABC Money

No Result
View All Result
  • Write for us
  • Contact
  • About Us
    • Authors
  • News Desk
    • Business
    • Finance
    • Property
    • Technology
    • Investment

© 2020 ABC Money

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.