Online investors have a wide range of options when it comes to trading. Spread betting is a less popular way of making money on the internet, and is one of the best yet. As you might have presumed, it is a form of betting. Unlike sports and other forms of gambling, the payoff for spread betting is based on how accurate the bet was. It is applied to stocks, forex, and basically any other money market commodity/instrument. Those who engage in spread betting don’t own the underlying asset- they only make profits or losses when the market shifts. You can take part in this investment option through a party like CMC markets for spread betting, which is an expert in online trading.
This term refers to the difference between the selling and buying price of an asset. For example, if a currency is sold at £5 and is bought at £3, then the spread is £2. The brokerage makes their profits from this spread, which is why this form of trading does not involve fees. Spread betting also gives investors a break from heavy taxation.
What does Spread Betting Involve?
Spread betting is just like any other form of money market investment, except for the fact that you don’t own any assets. It involves taking a position on a currency pair, stock or any other asset, and placing a wager on it. For instance, you can bet on a currency increasing in value over a particular period. The currency could be presently selling at £5, and you anticipate its appreciation over time. If you place a wager of £100 and the currency appreciates to a buying price of £10, your profits will be calculated by multiplying the difference by your bet. In this case, your profit will be (10-5) multiplied by 100. Your total earnings will be £500. Unlike other online trading options, you don’t have to pay taxes on this profits made from spread betting.
Long and Short Positions
Your forecast of the direction of the market will determine your position in regard to the underlying stock you want to bet on. If you expect it to appreciate over time, then you will take a long position. In other words, you will bet on the currency and hold on to your wager for some time. When you think the asset has reached its maximum value and is going to depreciate, you will take a short position. This means you will sell at the current price. In some cases, you will have to take a short position on an asset that is far below the price you bought it. This happens when the asset is likely to depreciate much further; and therefore, expose you to greater losses.
You don’t own any assets in spread betting, meaning that you don’t pay their full price. This is known as trading on margin. You only need to deposit a small percentage of its full value, and your profits and losses are based on the total value of the asset, which means they can be magnified greatly. In case the asset depreciates, there is a possibility that you may lose more than your deposit. Spread trading can give you access to many markets you would otherwise not be able to trade on because of the leverage involved.
Benefits of Spread Betting
There are lots of benefits associated with spread betting. Here are some of the reasons why you should consider it as a way of making money on the internet.
- You do not pay taxes on your profits.
- You have greater leverage since you only have to pay for a fraction of the total value of the asset
- Execution is fast. The market is run on a 24-hour basis, and since you will be trading online, everything can be performed as fast as you would like. This can potentially help you make profits or reduce your losses.
- There are no commissions paid to brokers
- The number of markets you can bet on is unlimited. Spread betting can be done on the forex and stock markets, precious metals, indices and even options. You can even trade on international markets.
- Because of the leverage you get in spread betting, it is possible to gain access to markets you would otherwise be unable to trade in.