What should you know about spread betting

spread betting

Spread betting has gained immense popularity and acceptance worldwide. The traders are betting more than ever in these days and there is a plethora of spread betting aspirants who want to become a trader. This post will give some deep insights about the spread betting.

What is spread betting?

Spread betting enables the traders to speculate the movements of the different types of assets such as company stock, commodities, currency pair and even the entire indices without actually owing these assets.

With spread betting, one can predict the outcome pertaining to these assets and the degree to which you are right or wrong in predicting determines the amount of profit or loss you will have respectively.Spread betting is not like fixed-odds betting where the trader the trader either wins or loses with a pre-defined payout or loss.

There are some vital points about spread betting which you must know about.

Long Term Spread Betters Have Higher Chances of Making More Money

While the spread betting I quite well-suited for short term trading as you can easily deal-in and out in the small cost efficient ways, but it does not imply that it is only restricted to the day traders. In fact, as per statistics, 90 per cent of the day traders lose money in spread betting. But, when you indulge in long term spread betting, your chances of comprehending the trends increase and thus, the chances of making profits also increase significantly.

Spread Betting Can Help You Protect Your Investments

There are several “buy and hold investors” who use the spread betting to hedge the positions. But, many people are confused about what “hedging”actually is and how it is related to spread betting.

Hedging is related to insurance, and irrespective of the fact that how many price comparison websites, you browse, insurance  will always cost money. This is how the spread betting may be used for hedging a position.

In spread betting, the time for which your position is hedged, you will not be able to make any profits, but the risk is reduced. Reduced risk helps in protecting your investments. There are several ways for hedging a portfolio and for reducing your risk exposure by the different degrees.

You Do Not Bet Against Your Broker

Most of the spread betters feel that when they get associated with a broker, they get locked in a bitter battle of nerves. When you bet at the bookies, your win implies their loss and vice versa. But, when you bet through a broker, it’s a different scenario. With a broker, when you take out a spread bet position, the spread betting company goes into the real market and takes out a corresponding position in the real shares and stocks, currency or commodity.

So, when you buy a company shares through a particular spread bet platform, your spread bet company will actually pursue that particular purchase of shares. In this way, they are not taking any risk from your position, that is, spread better’s position as they have hedged themselves.

Now you would think, if they have hedged themselves, how will they earn any profits. Well, their profits are derived from the applicable financing charges on you and from the cost of the spread.