First of all, it is important to be aware that whilst they share certain betfa characteristics and principles, spread betting and financial spread betting are two different things. But in order to understand what financial betting companies are offering, it is worth being aware of what financial betting is, in a simpler to understand case study.
Let’s imagine that a premiership football team are taking on a little known local football team. Clearly the bookies would find that very few people would bet on the little local team, making the betting system very uneven, and offering very miserly odds which wouldn’t make anyone very much cash.
Betting the spread evens up the odds a good deal by offering people the chance not to bet on who will win, but on what the difference will be between the scores. Let’s say that the bookie offers a spread bet of five points. This means that you can either bet on the premiership team beating the local team by five or more goals, or on the local team losing by less than five goals.
So the final score comes in and the premiership team score 9 and the local team scores 5. For those who bet on the local team team, the spread of 5 points added to their score of 5 makes a total of 10, which beats the premiership team’s score, which means that even though you may have bet on the team which lost, by using spread betting you still win.
It’s a little like that in financial spread betting, because you can still win big profits even when the financial markets are going down. You can also choose to spread bet over a short period of time, or over longer periods, and you can even choose to end your bet early if things look good but you suspect they’re about to turn around.
What financial spread trading companies allow you to do is to trade, not just on the fact that stocks or shares will rise, but on how much they will change, regardless of the direction. By betting a certain amount of money per point difference you can then make a significant return if you decided to bet above or below the markets current value. This also means that you don’t actually have to own anything. With financial spread betting, you don’t actually own any commodities or securities such as stocks or shares – you are betting on the change in the market, not on the market itself.
This also means that there are huge tax benefits to be enjoyed, because you are not buying the underlying assets there is no Capital Gains Tax to worry about, and no Stamp Duty, making it a tax free way to make significant financial gains quickly. However, there is a word of warning which all reputable financial spread trading companies should make clear, and that is that with a spreadbet it is possible to lose more than your initial stake. Therefore it carries a big risk, and isn’t for the fainthearted.