Spread Betting With Shares & Stocks
Share spread betting (stocks) is easily accomplished on any spread betting platform. Most of today’s spread betting companies offer a wide range of U.K. shares, ranging from AIM stocks to FTSE 100 stocks. Most spread betting companies also quote a wide range of global stocks and stock indices so it is highly likely that you will be able to get a price for most stocks or stock indices that you could wish to trade.
Spread betting stocks and shares is easy and the same process used to spread bet other markets such as forex or commodities applies. Bets can be placed in Pounds per point of market movement and many markets can be traded from as little as 10p per point. This is a huge advantage for spread bettors over traditional share dealing, as even those with modest accounts can trade several stocks at once without being restricted by having to put up large amounts of capital.
Spread bettors can also profit from rising or falling markets by betting in the direction that they think the market will go. If they think the market will rise, then they place an up bet (buy), known as going long. If they think the market will decline, they can place a down bet (sell), known as going short.
About Short Selling Shares
In traditional share dealing there is some stigma attached to selling short and many are not comfortable doing it. However, this is unfounded and short selling actually increases liquidity in the market and enables the market to reflect true value. Short selling bans often imposed by governments are foolish and counter-productive and show a level of ignorance as to how markets truly function. In spread betting, it is very easy to short markets and people should not be concerned about selling short. It is natural to do so when market conditions are appropriate and can be very profitable, as well as help to offset risk of other long positions that may be held in the portfolio.
The spread bettor can also protect his capital by adding a stop loss order at a predetermined point where he wishes to exit. Should the market fall to that level in the case of a long bet, the spread betting company will automatically close out the trade at the predetermined stop loss level, limiting the risk. The trader can of course adjust his stop loss at any time and generally will look to move the stop loss up to lock in profits as the trade progresses.
Deciding the Risk Level You Want to Take
Once the spread bettor has selected which market he wishes to trade and has decided on the direction that he thinks the market will take, he needs to decide how much risk he is willing to take. This is where most people get it wrong as they decide (if they even make the decision) how much they are willing to lose and then place their stop loss that distance away from the market. This is a foolish approach, as it does not take into account the market volatility or the chart structure.
The professional on the other hand will look to see where he wants to get out before placing his trade and will then calculate his risk accordingly, by dividing the amount of capital that he wants to risk by the distance from the market that he wants to place his stop.
Of course, one of the biggest advantages of spread betting, especially for U.K. residents is that spread betting is tax free and that spread betting does not attract stamp duty or capital gains tax.
At LS Trader, we do not cover individual stocks and shares but do trade global stock indices, which include the S&P 500, the Nasdaq 100, the German Dax and the Nikkei 225.
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