Why the media hates Financial Spread Bet Trading

newsmedia-news-squareThose 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’.

The Facts

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.

 

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