Making money in falling market is something that thousands of people are now achieving through spread – betting. This is not something without risk, its sheer gamble. Even though you can limit your exposure to a loss, there lies a chance of loss. This form of gambling has come in force since last few years and everyone working professionals and even students are getting involved and making money.
This form of betting is prevalent in United Kingdom and Ireland because of the tax regime as there is no stamp duty and no capital gains tax on profits from betting. The real attraction of this product is its flexibility (huge range of markets – over 10,000).
What is spread betting?
Spread betting lets you speculate on whether the value of a share, index, currency, or other financial asset will rise or fall. In traditional investments, you buy shares or other financial asset and sell it again later. If the price of the asset rises, you make a profit. If the price falls, you suffer a loss.
In this, you do not actually but the share or other asset – you merely bet that its price will rise or fall. It is a tax efficient way of speculating on the price movement of thousands of global financial products, including indices, currency pairs, commodities, and treasuries.
There are two prices for an asset – the “offer” is the price you can buy at, and the “bid” is the price you can sell at.
The difference between these two prices is called the Spread betting. ETX Capital is the most preferred and trusted company in this turf.
Benefits and Risks
For a new trader it is important to understand the benefits and risks associated with spread betting.
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- No commission or Fees – there are no commissions or brokerage fees applicable when you open close trades.
- Bull or Bear – you can go long or short of any market, to profit from both rising and falling prices.
- Trade on Margin – it greatly increases the advantage of your investment capital, as your initial outlay reflects only a fraction of your total exposure on a market.
- Tax- free Profits – Any gains you make are completely free of tax and stamp duty.
- Automatic Risk Protection- you account automatically generates a stop-loss for each position you open.
Risks Involved are:
- You can lose more than your deposit – you make profit if the market moves in your favor, and lose more than your deposit if the trade moves against you.
- Risk of account – close out – you need to monitor your account continuously and deposit additional funds to cover margins.
- Market volatility and gapping – changes in the market causes prices to rise and fall from one level to another. Gapping occurs during periods of high volatility and could result in your stop loss order.
- Holding Costs – holding cost is incurred on a daily basis when you keep positions on certain products.