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Spread betting is a derivative in which the trader does not own the underlying asset but simply bet on the basis of his/her predication depending in which direction the market will move, up or down. Spread is the difference between the buy price and the sell price. There are certain strategies developed which should be followed for a successful spread betting.
It is advisable that a spread better should have an account wherein he is supposed to deposit some amount in advance with a minimum of upfront cost. The doctrine of spread betting guide is : Supervision over the amount of money one can spread bet. Limit the amount of money to be utilised for spread betting up to the loss tolerance level of the spread better. Maintaining an account and monitoring that the account balance. Following the spread betting strategies. Use stop loss order to avoid making heavy losses.
A coin has two sides; similarly spread betting has its own benefits and risks. The benefits are: It has no capital gain tax on the profits earned from spread betting in UK . It is stamp duty free. Except the amount of spread, there are no dealing charges. Account can be maintained with a small deposit amount. Negligible upfront cost. One can hold the position as long as he wishes to do so.
Spread betting guide is beneficial only when the risk involved with it is managed in a proper way. The major risk involved is, there can be an ample loss to a trader if he does not follows a good risk management policy. Some of these policies are as: Understanding the market: It is the main essence of betting. One should have tremendous knowledge of the market before entering into spread betting. Since the market is very volatile with a lot of ups and downs, one should have a clear understanding of the various price movements before taking any position.
Monitor your position: The better should have a close watch on his position each and every minute. As there is extreme fluctuation in the market every now and then, he should have a tendency to react quickly accordingly. Use stop loss and limit orders: There may probably be cases were it would not possible for the trader to continuously monitor his position. In such cases it may happen that the trader may lose control over his position which can result into a loss. Thus, stop loss and limit order is a benefit to the trader as they get executed when placed at a specified price thereby securing him from making losses.
Analysis: The trader should have a detailed knowledge about the fundamental and technical analysis. Fundamental analysis includes generally the ratio analysis of the underlying asset and technical analysis includes the understanding of the various types of charts which are self explanatory and have trend lines indicating the movements in the market.
Thus, “buy low and sell high” is the key to a successful spread betting.