Question: Is spread betting a good trading strategy?
Answer: Maybe. It is a high risk, potentially tax efficient strategy.
What is Spread Betting?
Spread betting is a way to make a profit on stock or commodity trading. It’s a strategy that requires the bettor to bid on whether the price of an asset will rise or fall.
As a bettor, you don’t have to own the asset, commodity, or stock you’re betting on or the trades you’re making. You’re only required to decide what happens to the price. Hence, it’s speculative trading that allows you to trade in a price range given by your broker.
You will be required to speculate on price movements of financial instruments, such as indices, currency pairs, commodities, shares, and treasuries. When you become good at this, your broker can allow you to do spread trading as a professional.
If you want spread betting explained further and know why it’s a good trading strategy, continue reading:
- No Tax on Profits and Stamp Duty
One major challenge with trading is the taxes that one has to pay on the profit made per capital invested. This tax significantly reduces the profit margin for you. The tax is paid on every share you buy and sell. However, if you engage in spread betting, you’ll be able to keep all the profits you gain.
You don’t have to pay tax when spread betting strategy since you’re not required to buy or sell any commodities. Instead, you’re only placing a bet on the changes in the price of the commodities, so you won’t need to pay a capital tax.
The exemption on capital tax makes spread betting the most efficient way to trade. You can go ahead with spread betting and keep all your profit without any loss.
Also, you won’t have to worry about paying stamp duty. Stamp duties are supposed to be paid on the ownership of any asset, like stocks and commodities. However, if you don’t own any stock, indices, commodities, and shares, your net profit can reduce after trading because of stamp duties, if you don’t use a spread betting strategy.
- Leverage
One of the unique advantages of spread betting is that it gives you leverage above other types of trading. The fact that you don’t have to buy a product in the form of shares, stock, treasuries, and indices makes it possible to invest in the loan.
This means that someone else owns the product you’re betting on, so you can trade from the margin. This is why Forex spread betting platforms like Pepperstone UK will only require small capital to start your investment.
Because of the reduced price of investment makes it affordable to everyone, most people are engaged in spread betting. The leverage that comes with not having to buy the product you’re investing in allows you to start bigger than what you could have ordinarily afforded if you’re not using a spread betting strategy.
- Diversity of Trading Market Options
With spread betting, there are a lot of financial trading instruments you can bet on as a trader from just one trading account.
From that account, you’ll be able to spread your trade the various assets. These asset options include indices, Forex, shares, bonds, and commodities.
- Diversity of Choice in Trading opportunities
When you use spread betting as a strategy, you have access to invest in diverse trading options. As mentioned, since you don’t have to buy any product, commodities, treasuries, indices, and stocks, you can invest in all of the indices available. All you need is to pick whether their prices will rise or fall over after some time.
Also, you won’t have to worry about the declining price of products, if you have chosen that the price will fall in the first place. However, if you had bought the assets, naturally, you’ll have reason to be worried about the falling price.
When using spread betting as a strategy, you have the option to increase the duration of your bet if you believe that the price of the product you’re betting on will rise. However, if you think that the price will fall, you should make it a short time investment. This diversity allows you to enjoy making smart choices on as many trading options as you want.
For more information on what is spread betting and how to enjoy trading diversities, watch this video:
- No Payment of Commissions
This is another reason why spread betting is a good trading strategy to use. With spread betting, you won’t have to worry about paying commissions per trade.
This is because your initial payment covers up for all the spread betting you’ll make. Even if you are charged at all, it won’t be on commissions for trading but other service charges by your trading platform.
Conclusion
Trading is high risk and high-profit platform to make money. However, the best way you can make money even when you lack experience is to go for spread betting, which explains the reason why it’s one of the best strategies to use. It takes away the disadvantage of inexperience from your trading and gives you the needed leverage to make a profit.
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