Financial Spread Betting – thinking like a trader
With markets and economies constantly changing, many traders make investments in an attempt to provide additional income and make a significant return on their original outlay. Despite the vast array of investment opportunities available, very few offer a significant guaranteed return. If markets crash or share prices drop those who have invested stand to lose money rather than gain. Traditionally, if we invest in a product, company or commodity we rely on the value of the asset increasing in order to make a profit. For example, if you buy £5,000 of shares in a public limited company and share price drops you lose money and have no way of recovering it unless the value of the shares begins to rise again.
It is not only those who have investments that are reliant on the markets and the economy. Regardless of our financial position, we are all affected by the value of a number of commodities, businesses and currencies. If there is global shortage of oil we are subject to increase fuel prices in the same way that increasing food production costs result in us spending more on our weekly shopping. For those that do invest, they can face losing the value of their investment in addition to losing further money when their everyday costs are increased due to changes to the financial markets.
Although there are few instances in which falling share prices and markets can benefit us financially, spread betting enables investors to gain from falling markets as well as those performing well. By profiting from falling share prices, for example, traders can effectively recoup losses from their other investments and offset the increasing prices of fuel, food and other commodities.
Financial Spread trading offers people the opportunity to trade across global markets and bet on the rise or fall of share prices, currencies, bonds, commodities and even markets as a whole. In order to place a bet, traders are offered a spread with prices set either side of the actual share price. If you think the price will increase you buy or ‘go long’ and if you think the price will drop you sell or ‘go short’. Provided you have predicted the outcome correctly, the further the price moves, the more you stand to gain. For example, if you predict a price will rise, you gain a set amount for each point the price increases by. However, if your prediction is incorrect you stand to lose by the same set amount. Most spread betting companies allow you to choose how much to bet per point allowing traders the flexibility to trade the amount they feel comfortable with.
As well as allowing traders to make profit from the financial markets, financial spread betting offers a viable way of recouping losses incurred from falling share prices or economies. If, for example, you own £200 worth of shares in a bank and the share prices falls by 50% you would normally see your investment value drop by half. However, if you place a bet and predict the value of the bank’s shares will drop you will gain despite the actual value of the shares dropping. This gives you the opportunity to recoup the loss of your original investment despite the drop in share price, allowing you to break even or even make a profit.
Similarly, if the price of a specific commodity such as rapeseed increases then many food prices will increase due to the widespread use of the commodity within the food production industry. Inevitably, we are faced with increased shopping bills as a result. By ‘going long’ and correctly predicting the rise in value of the commodity, the trader gains from the increase in cost despite not holding any specific interest or shares in the commodity or companies producing the commodity. This win then offsets the loss the trader would have faced if he or she had been forced to spend more on their food bills.
Although traders can lose money if they predict a rise or fall incorrectly, carefully monitored trading and the use of stop losses can limit the loss and enable the trader to monitor the risk of the bet at all times. By predicting share prices and markets correctly, spread betting allows traders to gain financially and limit the effect the market and economy has on their investments and living expenses. This, in conjunction with the flexibility and lack of brokerage fees, means that spread betting is becoming increasingly popular for traders who wish to benefit regardless of whether markets are rising or falling, with limited costs and unlimited potential.
Spreadex are UK leaders in financial spread bettingonline. Simply visit their website www.spreadex.com/financials/to find out more and get started.