If you’ve ever wanted to invest in the stock market but are hesitating due to your lack of experience or capital, then, you may want to try spread betting. This practice entails wagering and predicting whether an asset’s value will rise or drop without needing to purchase the actual stock, bond, or contract.
Spread betting is made more convenient with online channels that allow you to monitor the market and place a bet when you feel that the time is right. You can also automate your trading through Pepperstone’s spread betting platform by setting perimeters for a particular asset.
Here are the benefits of spread betting for investors:
1. Tax-Free Profits
One of the primary appealing factors of spread betting is that you don’t have to pay taxes for your wins. Because you’re only speculating on the value of an asset and you don’t own it yourself, your profits won’t be subject to capital gains tax.
With traditional trading, you end up with lesser income since you have to pay the government their due for your asset. Moreover, spread betting is considered a different form of derivatives trading, which negates the assumption of ownership, so there’s no need for stamp duty.
While spread betting has similar advantages with contract-for-difference (CFD) trading, it’s, still, considered better than CFD trading. The latter still requires you to pay capital gains tax because it is, typically, regarded as regular income.
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2. Lesser Capital Needed
Leverage is a crucial term for understanding spread betting. The process requires lesser capital than traditional trading since you trade on leverage. With this, you can earn exponentially if your predictions are correct. However, it also magnifies the risk if you lose.
In spread betting, you only have to pay the margin, which is the amount of money your account should have to be able to open a position. For instance, buying 1,000 shares in a company with a share price of 500 USD would total to an investment of 5,000 USD. However, with spread betting, you only need to pay a portion of the value, which can be 20 percent. With this, you can start investing with just 1,000 USD while getting the same total amount of trade.
Nonetheless, you should be aware that the risk is also heightened with spread betting. That’s why you must take advantage of stop losses and other risk-control measures.
3. Bet On Price Hikes Or Drops
Another advantage that spread betting offers is that you have a more extensive range of profit opportunities because you can speculate on whether an asset’s value will soar or fall. With traditional stock trading, you only earn when the price of the stock or bond you bought rises.
As an investor, this aspect is valuable because you can earn money even when the market is down. It means that you aren’t limited to favorable situations alone, but also when you foresee a company’s shares plummeting due to specific events.
4. Trade On A Variety Of Markets
Spread betting also allows you to invest in a diverse range of financial instruments, all with just a single trading account. Now, you can profit from different asset classes, such as Forex, shares, commodities, bonds, indices, and exchange-traded funds (ETFs).
These are the common types of spread bet orders:
- Market Orders – This is the most typical form of spread betting and is executed immediately after being confirmed. You get the best available spread price at the time.
- Limit Orders – For limit orders, you have to name a specific price, and the transaction will only push through once it has been reached or better. For instance, by entering a limit order of a stock with a range of 48 to 50, you will only purchase the spread if the buy price is 47 or lower.
- Stop Orders – The primary function of stop orders is to control risk and limit potential losses on your spread bets. You use this as a signal that you want to close out a bet if the spread drops to your specified threshold or lower. However, you should note that it doesn’t mean that your order would be filled at your stop price, especially in a volatile market.
Conclusion
Spread betting is an ideal arrangement for investors who are new to this venture or those who don’t have enough capital to make a substantial profit with traditional investing. Diving into this venture allows you to enjoy tax-free gains, a more extensive range of trading opportunities, particularly with the different asset classes that you can order.