Financial Spread betting is a way of backing your judgment on a range of financial markets in a similar way to CFDs but classed as a bet entitling individuals to commission free and tax free trading depending on the tax jurisdiction and status.
History of Financial Spread Betting
Speculating on the markets by way of betting on the direction rather than buying or selling the actual shares was originally a popular method of trading in the U.S in the early 1900′s until it was eventually outlawed. The concept was then reborn in the 1970′s as a way of speculating on the direction of the gold price, the market and range of products grew to what is now one of the most popular vehicles used in the UK for trading.
Financial Spread betting is mainly popular in the UK due to the current tax laws and is the product of choice for many traders compared to CFDs and futures trading.
Spread betting works on a spread basis i.e instead of charging the client a commission or a fee for the trade, the provider will charge a spread (please see example below) which incorporates all the costs for the trade. Clients are able to speculate on most financial markets ranging from UK and international equities to commodities futures such as wheat and oil.
Mechanics of a Spread Bet
The concept of spread betting as mentioned is very similar to CFDs and can in fact be classed as a type of CFD trade. Put in simple terms if you have a view that the FTSE100 index is going rise then clients decide how much per index point movement they wish to bet.
- FTSE 100 index is trading at 6100
- Spreadbetting firm is quoting a price of 6098-6102
- You decide to buy GBP2 per point at 6102
- FTSE moves up you decide to 6180
- Spreadbetting firm is quoting 6178-6182
- You decide to sell GBP2 per point at 6178
- Profit = 2per point x 76 points = GBP6 profit tax free*
Spread bets differ from traditional CFDs in so much as they are traded over a fixed term with an expiry date, so if you have not closed your position beforehand it will expire usually at the market level at a predetermined date in the future. Many providers will allow you for a small fee (usually charged in the spread) to roll over the current bet into a new bet at expiry if you are wishing to carry on your trade.
Spread betting Providers
Providers are mainly UK based and do not operate like typical bookmakers who are reliant on you losing your bets to create their profit. As previously mentioned the bookmakers profits are derived from the spread they charge which is usually slightly wider than the current market spread.
Currently there are approx 10 leading financial bookmakers in operation. It is worth noting that different providers have different product ranges and if you open a bet with one provider you must close it with the same provider , bets are not usually transferable unlike dealing with a conventional stockbroker.
FinancialSpreadBet.com will be featuring reviews and provider information to allow an informed decision before placing your first bet.
Power Stock Trading Strategies 2.0
As some of you guys are aware, that I am putting my weight as a trader and trainer in technical analysis behind the incredible new trader training and mentoring course. This new course; is a completely re-written and revised trader training and mentoring program that is a full disclosure of how a professional trader trades. What’s more, this program is perfect for new traders or inexperienced traders as it assumes no previous knowledge in the markets. Of course, if you do have plenty of experience, that doesn’t hurt either.
Some of you may well know that I am a big fan of Trading Concepts Inc. You can probably tell from my previous post below this one regarding their mentoring, training and the level of training that they provide. Many of you, understandably are no doubt curious, as to why I would sit here, typing away and gladly give kudos to what many would assume is my competition. Trading Concepts Inc, training and mentoring courses are paid for courses and mentoring programs, that offer direct, mentoring, training and techniques that are proven to work. To receive that kind of level of service, takes a lot and I mean a lot of work. I know, because I’ve done it, but I don’t do that anymore. I still provide free training here, on my blog, which is detailed and building out nicely and of course I will provide regular updates and videos etc, but I won’t be providing you direct mentoring etc. I simply don’t have the time for that anymore, plus 10 years of having done that previously wore me out. Now, I just want to get on with my own trading and because I know my methods and techniques and teaching works, I will be giving that away for free, gradually, over time, when I write it.
Where as Power Stock Trading Strategies 2.0, is designed as a full on, trader training mentoring course, that rather than taking it casually like I am with my blog here, their courses and mentoring are designed for someone that wants to hit the ground running, that feels they need that one on one support, that understands, much like many of my old students do/did, that to receive that level of service and support, takes time on both parties and a good investment in yourself, personally and financially.
Those looking to start trading would be very wise to begin their trading journey by taking a look at financial spread betting. In many cases, those that have started trading and learning about the financial markets, got their feet wet trading in financial spreads. There are many reasons, why anyone, regardless of whether you are new or a long in the tooth trader should always consider financial spread betting. As I am sure you have noted by now, there are quite a few articles that I have written as regards why you should trade financial spreads. You could go as far as saying that I am one of it’s biggest flag wavers and despite the occasional knock that spread betting receives, simply because of it’s ease of trading and tax free profits, I do feel that nearly all of these knocks it does get, are based on ignorance and journalistic hoopla to mark traders as the ‘bad guys’.
Let’s get some facts here, so there is no misunderstanding. Financial spread bets, like any form of trading, in the wrong and inexperienced hands, can lose a great deal of money and depending on what type of trading account you have, it’s possible to lose more than your initial deposit. This is a given in any method of trading of any, any leveraged derivative or product. Oh and before we move any further, for those that may feel that they are invisible, you will lose money.
Why then am I such a big fan of trading in financial spreads, when I am saying that you will lose money? This comes down to more of an understanding of trading than any logic behind my saying that you will lose money. Let’s get this straight; successful trading is about managing loss and making sure, that overall, your profits exceed your losses. Therefore, it’s granted that you will have trades that will lose you money, in so far, as you should also, being a well educated trader (which you will be when you finish my free course), should have successful profitable trades too. Any successful trader will tell you, that it’s the balance of profit overall, that outweighs that of any loss overall. Trading is a business, so there will be days, weeks, where you are down and losing money overall, in as much as there will be months and years, overall, as a successful trader that you will make money. It’s the simple fact that your overall profit, exceeds that of your overall losses, regardless of how many losing trades you have. For example, you could have 10 losing trades, but because you managed the loss correctly, your next trade, because you manage the profit of it correctly, the profit you receive from that one trade, exceeds the loss you incurred from the other trades.
The above isn’t unique to financial spread betting, it’s global amongst all methods of trading. It is this understanding that marks the difference between those that understand trading for what it is – ‘the long game’, a business, it is greater than any one losing trade, or in fact any one winning trade.
Now that you understand that trading is about the management of trades overall and that it’s what marks that of any successful trader, regardless of what they are trading, we also need to take one other thing into consideration, with regards the sometimes bad press that financial spread betting receives.
They Focus On The Negative
One of the other aspects the press like to point out with financial spreads, is those that lose a great deal of money trading in spread bets. This is true, quite a lot of people lose money in trading them, so do those that trade the forex, options, futures and more. Yet, the press do not highlight those that lose money there either, so why then do spread bets get such a focus from the media. Personally, I think this has more to do with the fact that Financial spread betting is attracted to people that mostly have not traded before. Granted, the brokers do their best to make sure that those who open an account, understand the risks, understand methods of trading and so on, but at the end of the day, it really is just one person saying ‘yes I understand’, after all, they want to trade and make money, they will say what ever is needed so they can have an account. Brokers can’t check on someone’s personal experience and knowledge. What this leads to, is a good proportion of inexperienced traders, who dabble and ‘punt’ in the markets, not really knowing what they are doing. The open an account with a few hundred pounds, maybe a few thousand, and because of their inexperience and greed, they ‘punt’ on anything from a whim, to a news article to whether they like Apple that day or not. It is no wonder then that we see these people lose money.
It’s Only Human Nature
Unfortunately, what happens next is the ugly part. You see, basic psychology, human nature, is that we don’t like to, at first, blame our selves for our mistakes, more so, emotionally this happens with money. When trading, there is, with new traders, expectation and nerves. Most of the time they ‘over trade’, by that I mean, that their available reserves in their account are overly stretched on one trade, making any loss hard to recover from. It’s not uncommon to see a new trader over trade, especially when they’ve had some beginners luck and then believe that they are some kind super trader and then trade again, and lose, losing most of their deposit. Many spread betting companies allow traders to open tiny accounts with a few hundred pounds. These amounts are wiped away, due to inexperience, greed, over trading, beginners luck and more and when it does and without the right training it will, then instead of blaming their lack of skill, they blame everything else; the market was wrong, the broker wants them to lose, it’s a mugs game, only the rich profit in trading, the broker stopped me out as I was making money and so on. These new traders, then go and complain ever so loudly to whoever that will listen. If it’s a big loss and there will always be the foolish who lose big time. Then the press get involved, hype the story and because it’s related to trading, trading is related obviously to the markets, the markets are related to finances and finances to banks, then we are all put in the same basket as the bad guys, screwing the poor little man, who was ignorant and stupid enough not to educate himself and treat trading as any other serious financial endeavor, instead of a game, or as you would betting on the Grand National for a bit of fun. Trading, regardless of what it is you trade, is not a game.
Now then that we understand the reasons why the financial spread betting does tend to get a bad rap and an unfair one, the reasons why anyone should trade financial spreads are obvious, all of which I have covered in many articles on this website, but just to briefly cover again here; it’s tax free on profits. This you should know already, hell, I’ve written enough about it on my blog here. Not only is it tax free, to me, there doesn’t seem to be any other sense to trade with say a Forex account, when the profits on that account are liable for tax, when you can do the exact same thing, the exact same method, using financial spread betting.
It’s All In The Financial (Spread) Bet
OK, now the bad news and really it’s not that negative, but it’s usually the thing that is brought up by experienced traders who either sneer at financial spreads, or would never consider it for the following reason; the spread. Yes, the spread. This after all is where the spread betting company makes their money, not on you losing money at all, those losses go on to pay those that are winning. In fact, as I have said many times before, the financial spread betting company wants you to be successful, so you continue trading, making larger trades, and because the spread, the larger you trade, the more money the company makes, simple really. Yet, most traders, those that trade Forex or futures, or whatever, tend to sneer at spreads, because of the spread. What they fail to understand, is yes, it will cost them more in the spread, that it takes a little longer to move into profit on trades because of the spreads being larger than say on other broker accounts, but here’s the rub – the cost of the spread, will always be outweighed by the amount you save in tax from the profits you make. Anyone trading in Forex, using a FX account, could easily, if successful, be liable in the UK for up to 40% tax, on their profits. That’s a lot of tax and it would take a great deal of trading to equal that in spreads. For me, it simply makes sense, to pay that little more at the start, knowing that any profits I make, will be tax free.
Just a quick note to say that I am starting to push out content for the training part of this blog. For those of you who are new to this blog and to trading, then welcome, you are in for an exciting ride and hopefully a profitable one – more to the point, this website is for you. I won’t go on about who I am, you can read more about me in the articles and so on above. What I do want to say, is that I aim to provide each and every one of you, with a complete and more to the point professional and free trader training course, not seen anywhere else on the Internet before. Not only will this course be completely free, but more so, it will be ever changing, evolving, updated. All the content will be fresh and unique and depending one when you have joined us, whether that’s right this minute as I write this, or month ahead when this post is quite old, then you are in for an exciting time. The content and training will grow out gradually. Partly to allow you guys to assimilate the information, but more so, to enable me the time to write it.
How The Free Trader Training Course Will Develop
The content for each module will go through various stages;
Stage 1 – module text written and published
Stage 2 – images, hyper links and other information added
Stage 3 – third party video added (if available)
Stage 4 – supportive contextual training images added (if applicable)
Stage 5 – supportive contextual training videos recorded / edited and added (if applicable)
Stage 6 – supportive contextual training test (if available)
As you can see, each module will go through 6 stages. However, that doesn’t mean that you will have to wait for module 1 to reach stage 6 before you can read module 2. No. The content on the training modules will appear in this stages first. Meaning, that initially it will be predominantly text based, then as the content grows and other modules added, the older modules are updated as per the stage. Each module will have a small note at the end of it, stating which stage of production it is at, allowing you to know what stage is where and why.
The important thing to realise from this update, is that the important part of the each module is added first, namely the text, as without it, you will not learn a great deal. Therefore, I will always endeavour to make sure that at least, at the bare minimum, the text is there for each module as we work through it over the weeks and months ahead.
Don’t forget to comment:
Another important aspect to the modules, is to comment, share information, tell us and everyone else who you are. Remember there are many people, just like you, wanting to learn about trading and it’s a great way to strike up friendships and to get to know one another.
Where Can You Trade in Financial Spread Bets?
One of the questions I get asked about and it’s somewhat of an odd one, which usually begins with ‘I’ve heard about financial spread betting, but where can I trade it and is it tax free everywhere?’. Now, this is a decent enough question I suppose and as I’ve said, it’s one that I get asked quite a bit. It does amaze me though that one of the usual misconceptions is that some people actually think that financial spread betting is the product, service or item traded and that’s it. I think this confusion happens from the media, who have at times and mostly negatively certainly in the UK and through usually a good amount of ignorance on the journalists part, simply stated something along these lines in a new article ‘The trader was found to have lost money going short trading financial spread bets’. Given that this is partly true, yes you can lose money in trading and spreads are no different, but you really don’t specifically trade financial spread bets, well you do and you don’t and this is where the confusion lies. For those of you reading this for the very first time, you may be confused, but all this confusion on what financial spread betting truly is, can be read in the other posts on this very blog. It would seem silly of me to simply spout off the same information again, just for information sake.
So Where? The Answer Is Obvious…
Having got the confusion out of the way with regards to ‘trading in spread bets’, let us look at where you actually trade them. I have covered this in some detail in other articles, but I do like to try and keep things fresh and given that I was only asked this very question above the other day, I thought that it would make an interesting article. You see, I’ve been teaching traders analysis for years, at least 10 and it’s so very easy for me to make assumptions, much in the kind of way when people ask me, what to me is an obvious answer, but to others, may not be so.
Where can you trade them? The simple answer is with a financial spread betting company. That may sounds flippant, but the answer is in fact entirely true in every respect. These companies are not actual brokers, they are essentially book makers, nothing more. Legally, they are seen, predominantly as bookies, that offer odds based on the markets, but these odds are not in the traditional sense of say 3/1 against, or anything like that. The odds are presented as actual market financial data and the horse is the market or derivate, which is can be anything for any Forex pair or an index or a stock, plus many more options. The profits that are made, when you ‘win’ against the bookie, are tax free, as you are making a bet against the bookie, the spread betting company. Having said that, many of the main brokerages in the UK do offer Financial Spread Betting platforms, simply because they have the market knowledge and the market data anyway. Although, the last 5 years, or more, we have seen some of the High Street book makers move into spreads, but some of these are what are called ‘White Labels’ which is where there site is a branded site but the logistics and company behind it is an established broker or spread betting company – a common ‘White Label’ provider is London Capital Group. I will be writing more about ‘White Labels’ in another article.
You Do Know It’s Tax Free Right?
The whole Tax Free aspect of trading in spreads varies of course as to where you are based, in the UK gambling profits are free of tax, providing you opt to pay the tax on your bet/stake, rather than on your winnings. With spread betting, this is done automatically for you. Not all countries allow this form of trading of course. In the US, which is the World leader in gambling and in many respects was/is at the front of the ‘at home’ trading revolution that started in the early to mid 90’s. It would be safe to assume that you can trade financial spreads in the US, but amazingly you can’t. There has been quite a number of calls to have this changed and prior to the global financial crisis, this was actually gaining some steam. All that changed of course in 2009. I would imagine it pretty unlikely that the US will ever allow financial spread betting in the country or provide anything similar, which is a real shame. Strangely you can trade in spread betting, but nothing related to the financial markets.
….but not everywhere!
Other countries that do offer financial spread betting are; Canada, South Africa, Russia, France, Spain, Germany and most major European countries, but it does seem to change from year to year. Other countries do seem to come and go. If you are not sure, you can always email me directly and I can look for you directly. As I have many contacts within most of the spread betting companies across the globe, so can always help, plus I can help further on getting you a good account.
Once you have established that you can trade in financial spreads in your country, the next step is to figure out whether the profits you make are tax free. Now this depends partly on what it’s called, if they call it financial spreads, this means that it’s similar to trading in financial spread betting, but they do not class it as betting so the profits will be liable to tax. If the company states it with ‘betting’ at the end then it might be tax free on profits, but depends on how your country tax on gambling works. Most countries do not tax on gambling profits, but you simply need to check. Providing they don’t, then you are good to go.
Some quick news….
Very soon, I will be providing a detailed list of brokers, I know they are not brokers, but it’s the trader in me calling them that and as I’ve said before, many of the main brokers in the UK offer spread betting. Using this upcoming list of brokers will help decide which broker is for you. I will aim to provide a detailed review on each of their platforms and markets covered and point sizes.
For those of you interested in learning to trade, which I imagine is quite a lot of you, then don’t forget that I am producing a professional level trading course, that will teach you in technical analysis, the very thing you will need to learn to trade professionally, or at all for that matter. This trading course is free and gradually builds out as I write it. Basically, as soon as I have written a training article I will post it. The course will build out quite extensively over time and to keep track of updates, make sure you register in the top right. I do aim to use a financial spread betting platform for the examples and I am currently looking and talking with many of the brokers, as I want to show one in the training videos that I will also, over time add, that I believe offers the best platform and coverage and spreads.
Gradually, this training course will teach you how to trade at a completely professional level. It is free and as I write this article now, there are training modules going up on the training section today.
What Do Traders In Financial Spreads Actually Trade?
Over the years, there has been quite a lot of misconception and preconceived ideas as to those trading in financial spread betting actually do and what on earth they actually trade. Many of these half truths and in some respects, down right lies, come from the press, who like to pillory a method of trading in the financial markets, that has both become a professional means of profiting from the financial markets, but also one that has come of age and is incredibly popular – both in terms of private traders and even institutions trading in them.
Unfortunately, a lot of the negative press that appears regarding financial spreads, is partly because the actual method of trading is available to almost anyone and secondly because you do not physically trade anything and are in fact taking a position against the spread betting company themselves, then you are not directly involved in the financial markets (more about that in a moment) but are simply taking a ‘punt’ against the contrary view of the spread betting company. The advantage, being many, but primarily any profits made are tax free.
However, because of these main facts associated with financial spreads, the press and a good amount of the public at large, mostly because of ignorance and that it’s ‘cool’ to knock anyone or any institution looking to profit from the markets and God forbid doing so with a method where they don’t pay any tax on the profits either, causes a great deal of delight for editors and two bit journalists looking for an easy target. What else could be easier to negate and garner public opinion than a method of trading which; is tax free, actually nothing is traded, massive profits can be made, and any part of the market or derivatives of can be traded. Wow, now that alone can be nectar to any negative journalist.
Don’t Let The Name Fool You
The truth of the matter is that despite it’s name, financial spread betting is a professional means of taking advantage, providing you know what you are doing, from the markets. For those of you looking to learn more about the markets, I am gradually writing and publishing, on this blog, what will be the equivalent of a professional level of training in trading and more so, in what I have been teaching traders for over 10 years, technical analysis. I will teach you exactly what professional traders need to learn to pass their exams, plus a few things they don’t teach you, which I’ve simply learned myself over the years.
Anyway, back to the story. As I was saying, the name itself doesn’t do it any favours. For starters, it really doesn’t sound like a professional means of trading does it, the only part that does is the word financial, but spread and betting, really takes any professional view garnered from its name away very quickly. Now, from those of you who have read the articles that I have been putting on this website over time will understand, or more to the point really should understand, is that the spread simply refers to the point between the buy and sell and where the broker or for those who want to be accurate, the financial spreads company (even though most are owned by brokers), make their money. The betting part, is associated with the fact, that any trade that you make with your broker, is against the broker and not actually in the markets themselves, because of this, it’s gambling, much as you would in a casino and another reason why the press like to lambast spreads.
You Can Trade Pretty Much Anything
Yet, for the initiated amongst you and I hope that you are one, spread betting despite it’s name and bad rap which is mostly blown out of proportion, is a highly professional means of trading and should be taken very seriously. Simply because, the fact that you can trade pretty much any market within financial spread betting, this alone is down to the financial spread betting company or more to the point I prefer to call them brokers still. They decide what you can and can’t trade, as long as they can get the market data, then you can pretty much trade it.
For instance then, 99% of all financial spread betting companies do allow you to trade in stocks, indices, commodity markets, including metals – gold, silver and so on, as well as the entire Forex market and this is just for starters. The very fact that spreads are unique, allows for the ability to include various forms of trading each and every of these derivatives or sections of the market place. Meaning that of course you can trade as you would using any of the professional methods of trading the markets, which as a reminder you will be able to learn on this website – enter your name and email on the top right for access. The brokers have developed trades that allow you to call market prices and ranges as well, which give you even more methods of taking advantage of the markets, than you could from any other method of trading.
I have always been a huge advocate of spreads and will continue to be. Personally, I always wish they would have changed the name of it, so it didn’t sound, well so cheap. Yet, despite it’s rather naff name. For me and for many like me, there is no better way to trade the markets. I simply fail to see the sense in trading using say a full on broker, when you know that any profits that you make with that broker are liable to tax. Where as, you can do the exact same thing with a financial spread betting company and walk away with ALL the profits and pay no tax. Granted, you pay more in the spread, but given the advantage of the tax breaks you receive and providing you trade professionally, then it’s a no brainer.