One of the major benefits often cited by those involved in financial spread betting is the ability to access a range of markets.
Different financial markets appeal to investors for different reasons.
The currency markets, for example, are highly liquid and trading can take place 24 hours a day thanks to different markets opening at different times.
Commodities futures are also highly liquid and offer the potential for large profits - and losses - thanks to the leverage employed.
One of the beauties of spread betting is the fact that you can access both of these markets and more.
However, the very nature of spread betting means that you will not access them in the same way as say, a forex trader would.
With spread betting, you speculate on the price movement of an underlying asset. Your broker quotes two prices - the bid and the ask - and you must decide whether the price of the underlying asset will be lower than the bid or higher than the offer price.
You therefore do not buy the underlying asset, be it a share, a commodity or a currency, you simply bet on whether it will increase or decrease in value.
Financial spread betting carries with it a high level of risk to your capital and you can quickly lose more than your initial deposit. It is therefore not suitable for everyone and you should make sure you understand the risks involved and seek independent financial advice if necessary.
As previously noted, one of the markets you can access is the forex market.
The forex markets are the most liquid in the world thanks to the number of traders involved and currencies can be an attractive asset for spread bettors.
Different markets open and close at different times, meaning that currencies can be traded morning, noon and night.
When spread betting on currencies, you can speculate as to whether the price will rise or fall, so you can potentially benefit from falling and rising markets.
Another market open to you through spread betting is the commodities market.
Commodities are essentially goods that are interchangeable with other produce of the same type. For example, copper purchased in the UK is identical and interchangeable with copper bought in China.
Spread betting on commodity prices as opposed to purchasing a quantity outright is much cheaper. With the spread bet, you have to commit a lot less in your initial stake but can still get exposure to full price movements.
You can also enter into spread bets on shares.
When you buy shares in the UK, you have to pay stamp duty of 0.5 per cent, which is not the case if you speculate on their price movement instead. That being said, you will not benefit from any dividends or voting rights due to the fact that you are not buying the company's shares.
As well as stocks, you can also spread bet on stock market indices such as the FTSE 100. Instead of focusing on the performance of a particular stock, you bet on the direction of the overall market.
Spread betting gives you access to a range of markets, which is why it is among the most popular ways to trade the markets.
However, it is also a highly risky activity and you can quickly lose more than your initial investment. It is therefore wise to seek independent financial advice to ascertain whether or not it is right for you. The value of investments can fall as well as rise and any income from them is not guaranteed. You should be prepared to lose your investment.
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