What Are the Pros and Cons of Spread Betting?

Spread betting is becoming more and more popular these days, along with other similar methods of trading such as binary options trading. Spread betting is different from conventional trading forms where you play on the actual prices of various financial instruments. If you’re planning to enter the world of spread betting, then it might be beneficial for you to know its pros and cons.

Pros of Spread Betting

The advantages of spread betting easily outstrip its flaws. While you’ll always benefit from the numerous advantages of spread betting, you should know that the extent to which you benefit will depend on many different variables such as your chosen broker and even your location.

  1. Tax Free: In some countries in the world, profits from spread betting are actually completely tax free. This means that whatever you win from your spread betting adventures, you get to take home and enjoy.
  2. Zero or Negligible Commissions: Most spread betting brokers available online like ETX Capital and a few offline don’t charge direct commissions or fees from the trader. This is in direct contrast to all other forms of financial trading and investments such as stocks, forex, and futures.
  3. Profit Independent of Market’s Direction: If you consider stocks and futures, you’ll find that you can’t profit with them if the market is falling. This isn’t the case with spread betting. In spread betting, you can end up making a killing even if the market is plunging dramatically.
  4. Huge Leverage or Margins: In spread betting, you get to benefit from huge margins or leverage. What this means is that you can initiate a trade with only a small sum of money because the margin system multiplies it. With the right use of margins, you can actually increase the amount of your potential profit manifold.

Cons of Spread Betting

There are a few cons of spread betting too. The foremost of these is actually margins or leverage. Using leverage means that you can increase the size of your potential profits but it also means that the size of your potential losses goes up. Thus, if you’ve used too much leverage and you fail in your prediction, then your losses can be high enough to break your financial back.

Another downside of spread betting is that it isn’t geared for the long term investor or trader who wants to buy assets and rely on their long term appreciation. Instead, it’s a trading form that is ideal for the short term trader who wants to get in and out of the market quickly.

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