If you’re an investor who has never heard of spread betting, you’re missing out on an innovative trading technique that theoretically offers you to more frequent and margin-based returns.
In simple terms, spread betting is a derivative trading strategy through which individuals invest without ever owning an underlying financial instrument.
This technique is particularly effective when used in relation to currency trading, and it has become increasingly popular when compared to stocks and commodities in recent times. With this in mind, here are the key advantages of spread betting over more traditional investment techniques.
Profit in a Depreciating Market
When investing in traditional stocks and commodities, one of the biggest challenges is the fact that traders will often need to assume ownership of these assets.
This means that investors are always restricted by the performance of their chosen markets and asset classes, making it almost impossible to profit in a depreciating marketplace.
This is not the case with spread betting, however, which enables you to speculate on the performance of a particular asset and hedge against in where necessary. So, you can profit directly from falling prices or a declining market sentiment, increasing the likelihood of earning frequent gains.
Place a Lower Deposit for the Same Market Exposure
Another key benefit of spread betting is its marginal nature, which allows you to trade simply by making a deposit on the full value of your order.
This contrasts sharply with stocks, where you can only trade by buying the asset outright and securing ownership of an underlying instrument.
In this respect, spread betting allows to access specific markets for less, without compromising on the level of exposure that you enjoy. This is a huge consideration, and one that has made financial market trading (and particularly currencies) increasingly accessible in the digital age.
Benefit from Tax Exemptions
On a final note, it’s important not to underestimate the tax benefits associated with spread betting in comparison with stocks and commodities.
Spread betters will not be required to pay the 18% capital gains tax applied to shareholders, for example, while they will also avoid stamp duty and commission payments (aside from the initial spread, of course).
As a result, spread betters can optimise their gains by around 20% on each successful investment, creating a competitive advantage that is hard to ignore. You should also keep in mind that any profits earned through spread betting are not typically eligible for income tax, although this may change if this represents your sole source of income.