Over the course of this decade, the concept of spread betting has caught on among financial traders around the world. That said, this potentially lucrative method of financial trading is often shrouded in enigma. In turn, this has given rise to a number of misconceptions which may have held back some from venturing into the sector. This guide is meant to help dispel some of the most common of these myths.
1. Spread betting is too complicated, only specialists can understand it
To a rank outsider, spread betting may sound very complicated. This is not helped by the jargon bandied about in tabloids and on some online forums. However, with some little patience and practice, you will come to find out that spread betting is actually a very straightforward way to add to your income. A financial spread bet through a reputable company such as cmc markets is a highly geared bet on the price of a product either going up or coming down within a specified time.
The product can be anything really. The money earning potential of the bet lies in the leverage. Because you do not have to pay the full value of the position you take with a spread bet (only a small margin or deposit is required), it is possible to leverage up to 20 times of your initial capital outlay.
2. Spread betting is Riskier than Traditional Trading
In a manner of speaking, this statement has an element of truth but it is also not universally correct. As spread trading is a leveraged product, your initial stake can be much smaller than your potential profit or loss. In other words, if the market moves in your direction, you are likely to make a lot and you can equally lose a lot if the predicted movement does not happen.
However, the mathematical risk associated with a spread bet on a share price is exactly the same as the risk associated with actually trading in the particular share.
3. Spread betting is the Same as Futures & Options
Definitely not! While there are similarities between financial spread betting and Futures & Options, they are radically different in many senses. For one, if you want to trade with Futures & Options, you need a great amount of money. With financial spread betting this is not the case at all. Which leads us to the next misconception in the list.
4. You need to A Lot of Money to Begin Financial Spread Betting
It may be true that in the early days of spread betting it was necessary to have a huge capital outlay before beginning, but that is no longer the case. Many of the leading bookmakers specializing in spread betting services only require you to have as little as £100 or $100 to open an account. Of course it will not be easy to make a fortune if you only invest a little amount but it is possible, even advisable, to begin spread betting cautiously.
5. The only Way to Learn Spread betting is by Trading with Actual Money
You need not risk losing your money if you are not familiar with the basics of spread betting. Leading providers of spread betting services such as CFD Markets allow users to create virtual or demo accounts and begin trading right away without risking any money at all.
6. Spread Betting isn’t just gambling
To be honest, spread betting is classified as gambling in the UK. However, the mechanics of spread betting put you much more in control of your destiny than ordinary gambling. Unlike gambling where the odds are set to be in favor of the house in the long run, odds play a much less important role in spread betting.
It is the actual behavior of the market which determines whether or not and by how much you are successful.
7. Spread betting Only Works with Shares and Options
As expressed at the beginning of this guide, spread betting allows you to make predictions on the price of a variety of financial products. These could be shares and options or a stock index, currency pair or tradable commodities.
8. Spread Betting is Limited to Local Markets
Providers of spread betting services strive to ensure as much variety as possible in the options they offer. You can therefore trade with global share markets as well as indices, a variety of currency pairs and the commodities of your choice. You do not have to restrict yourself to the local markets.
9. Spread Betting is not Suited for Day Trading
While long term options on spread betting are less riskier, it is still possible to make a good return with day trading options. With day trading you will hold a position after particular markets open and exit before the markets close. To make the most of day trading, ensure you keep your eyes peeled for price movements throughout the day.
10. There are a countable few people doing spread betting
Nothing could be further from the truth. In the United Kingdom alone, there are well over 50,000 who have active financial spread betting accounts with one of the leading financial spread betting bookmakers. Month by month we are witnessing more and more companies joining the fray to meet the demand for those looking for spread betting services.
Indeed, the financial spread betting market is booming. Perhaps the industry players are not spreading the word about the validity of what they practice. But again, that is why we have compiled this guide: to dispel the myths which are keeping people like you from joining the gravy train of spread betting.
11. The Spread betting Provider Wants you to Lose
Think about it, if you are a spread betting provider, what good would be a client who consistently loses? It would lead to dissatisfaction, bad press and mass exodus from the service. The provider is actually rooting for you to win consistently so you can become a regular customer.
12. You May end up Losing all your Spread betting profits through Taxes
If the fear that you will lose a big chunk of your spread betting earnings through taxes has been holding you back from starting, you have been duped. Spread betting is one of the most tax efficient forms of financial trading available, better than even Futures & Options. In the UK for instance, profits made from spread betting are exempt from both capital gains tax (CGT) and stamp duty.
13. You Have Little Options for Mitigating Losses in Spread betting
As intimated previously, there are many differences between ordinary gambling and spread betting. Spread betting offers you a number of options to hedge against losses. For instance, you can use well-placed spread bet to diversify your portfolio as well as hedge against other positions and therefore decrease your exposure and risk.
14. Providers Cheat Clients by Offering Inaccurate Market Data
This common misconception perhaps stems from those traders who are frustrated by losing more than they win. However, such a trend is likely as a result of the complexities of the market rather than any underhand dealing by the spread gambling service provider.