An Introduction To Financial Spread Betting

The arrival of the age of the internet brought along with it countless new opportunities related to the investing in the stock market. Investors suddenly had so much more information at their disposal, leading many to buy-pass fund managers and manage their own investments.

For anyone with the time and interest in researching companies, ownership, performance, and stock market tendencies in general, self-managing investments can make a significant difference in the fees and commission payable to financial middle-men. Others yet, prefer investing their hard-earned cash in something like unit trust. All of these options are perfectly good ways to potentially grow wealth and personal portfolios.

But there is another option also, and it’s an option that could potentially mean lucrative returns in the long run. This alternative option is called financial spread betting.

How Does It Work?

Spread betting allows the bettor to trade on the movement of a share or any other commodity or bond. What it essentially is, is a form of betting that allows an individual to “play” the stock market without actually having to invest in or own shares.

As such, financial spread betting allows the individual bettor to access markets, stocks, and commodities previously only accessible by banks and registered financial institutions.

The Pros Of Spread Betting

There are several advantages to financial spread betting as opposed to actually owning stocks:

  • You don’t need a lot of capital to get you going. A spread betting account can be opened for less than $100.
  • Financial spread betting is a lot easier to understand than most other financial instruments of trade. The process is simpler and less daunting.
  • Spread betting allows the bettor to profit from the rise and fall of markets. Rising markets are called “bull” markets, and falling markets are referred to as “bear” markets.
  • There are no hidden costs, commission, etc. payable. All costs associated with the bet are already included in the spread.
  • Big plus: spread bets aren’t subject capital gains tax (this is the rule in most jurisdictions).
  • One “user” account can be utilised for several financial commodities. These include currencies, bonds, commodities, single shares, etc.
  • No foreign exchange currency risk involved.
  • Unlimited profits. The sky is the limit.
  • The risks of ownership are eradicated.

The Cons

  • All spread bets are subject to expiry dates. Timing is therefore crucial – much more so than when investing in shares (ownership).
  • Losses incurred on “bad” bets cannot be offset against capital gains. No capital gain taxes payable also means no sideline advantages.
  • There isn’t a limit to the amount of money that can be lost. Even so, this can be managed with great success.
  • Expiry dates mean spread betting isn’t ideal or even suitable for long-term investments. The deal is to bet, make your money, get out, and start again. This type of approach may seem daunting to some.
  • The spread betting industry is constantly changing. This makes betting NZ suitable only to those who have time for research and record-keeping.