Spread betting has been featured in many news articles and financial trading reviews during the past few years. In truth, the opinions are generally varied in terms of how effective this method is in terms of a trading strategy. Some believe that spread betting is a dangerous practice which should be avoided altogether while others who tend to be more informed observe that this form of derivative investment is an excellent way to accrue wealth through short-term positions. Let us take a look at some of the ways in which profits can be be enjoyed through spread betting so we can dispel much of the disinformation that exists.
Rising and Falling Markets
One reason that many investors become involved with spread betting arises from the fact that profits can be made when the value of an asset either rises or falls. This is able to accommodate both bullish and bearish market scenarios. The trader simply needs to correctly predict the direction of the movement. This is fundamentally different from the majority of traditional stock positions which are associated with gains ONLY during a bullish move. Spread bets can therefore be ideal solutions during turbulent times.
Small Commitments for Large Rewards
Another principle behind spread betting is that the trader does not physically own the underlying asset. This is the reason why leveraged positions can be selected. The investor will own a fraction of the total value of the share and if the directional movement is predicted correctly, a substantial profit can be enjoyed. This is also referred to as margin trading in some circles. Exponential growth is a very real possibility and yet it still needs to be pointed out that any leveraged position must be taken with a considerable amount of caution.
Most traders will not rely upon spread bets alone to achieve sustainable wealth. This arises from the fact that higher levels of liquidity are naturally associated with greater risks. So, spread bets often represent a relatively small portion of one’s total portfolio. Any accrued profits can thereafter be channelled back into other positions such as stocks, currency pairs, commodities and indices. This is also an excellent way to nullify or negate any losses that may occur within a specific spread bet.
The Importance of the Trading Platform
Spread bets require access to information at the click of a button with little or no latency (delays) when referring to the execution of a position. This is the reason why choosing the correct trading platform is critical to one’s ultimate success. Modern and proprietary trading tools such as those offered by CMC Markets
are the most effective means to capitalise on an existing position and to walk away a winner. Although losses can and will occur from time to time, these can be diminished through the use of intuitive and robust trading packages.
Must like any other form of investment, there are certain levels of risk associated with spread betting. This is the main reason why such investments need to be approached with an air of pragmatism and logic as opposed to relying upon “gut instinct” or sheer greed alone. With experience and a thorough understanding of the mechanics behind spread betting, it is indeed possible to experience healthy profit margins.