Spread Betting and Conventional Share Trading Compared

by Redeeming Riches on October 2, 2012

Spread betting is illegal in all but four of the United States, but moves are afoot to neuter the Professional Amateur Sports Protection Act of 1993 that prevents it, so this might change.

Spread betting with such a service as Cantor financial betting and conventional share trading are two ways to make money from the changing fortunes of companies where a multitude of instruments can be traded from an online trading platform. They have some key differences. A primary one is that in the straitened economic circumstances of today, spread betting allows profit to be made from a falling market.

A major aspect of conventional share trading is finding an experienced and reliable stockbroker, and then paying them commission. There is no need for a stockbroker to conduct spread betting, making the process rather more convenient – and profitable. Better yet, spread betting can be conducted around the clock, while few stockbrokers will be open at 4am when a major company-related announcement is made overseas.

Let us take the example of buying 600 shares in a company for 900 cents, which costs $5,400. The spread betting equivalent would be to buy $6 a point at 900. You would not need to have $5,400 in your spread betting account, because if the margin is 10 percent, only $540 is needed.

A margin is also known as a notional trading requirement or deposit factor. This is a fraction of the value of a trade which must be lodged with a spread betting company, whereas with conventional share trading, the full price of shares must be paid, so spread betting ties up less capital. Margins are usually 10 percent, but can be higher if the instrument concerned is volatile and lower if the market is liquid (i.e. there is much trading activity) or a stop loss order is in place. Spread betting companies such as Capital Spreads make stop loss orders automatic. Margins have increased globally. Low margins are especially important to day traders who bet on minuscule price movements. The downside of a margin is that it is possible to lose considerably more than you originally invested.

Ownership of shares yields dividends and allows a share owner to participate in the making of decisions by a company. Spread betting on futures contracts, dividends will be taken account of with the price, and the second item is not so terrible.

Spread betting outside the United States is growing rapidly, and the reasons are obvious.

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