How Spread Betting Differs From Trading

There are some major differences between spread betting and trading, primarily in leverage, taxes, liquidity, transaction fees and dated contracts. By recognizing these differences you can become a more informed and therefore better prepared trader, able to limit losses and maximize gains.

Leverage

Spread bets are leveraged, which is the same principal as taking out a mortgage when purchasing property. Traditional trading, on the other hand, involves using your own money to purchase stocks and shares, so you would be required to spend considerably more to match the value of a spread bet. With any type of leverage comes risk and it is up to the trader to use the facility wisely.

Taxes

This is an area where there are major differences. In many countries there are no taxes on spread betting profits and stamp duty and capital gains tax do not apply. However, in a number of countries spread betting is being looked at by governments and could potentially be taxed by the same bodies that regulate traditional investments.

Liquidity

Although many traditional stocks are not liquid, spread betting stocks open quickly and easily. Therefore, they can also be closed quickly and easily, making them extremely liquid.

Transaction Fees

There are no transaction charges associated with spread betting. Sometimes it is in the best interest of the investor to pay the broker’s charges, which is especially true for long-term stocks. Remember, spread betting disguises its charges within the actual spread.

Dated Contracts

As an investor, you place bets for your prediction of the share price at a future date. For short-term traders these are rolling daily bets set at 1, 2, 3 or 4 quarters ahead and the further into the future the bet, the larger the spread. The future spread is usually not unreasonable and you can close your trades at any time, regardless of win or lose. Another option is to roll over the bet to the next period.

Author bio: Saurav is a SEO engineer for a spread betting company. He believes spread betting is the quickest way to make money online if you play your cards right - just to clarify it's not a card game.