By IndependentInvestor.com
Financial spread betting affords traders the opportunity to take leveraged exposure to key markets, with a view to multiplying their capital on shrewd price speculation. Because of the leveraged nature of spread betting trades, even micro movements have the ability to scale up the returns or the corresponding losses, depending on how effectively the market is traded. As a result, timing is of the essence, and squeezing every point available from each transaction is a requirement of building a profitable portfolio.
Simultaneously, spread betting markets are priced by brokers to include a spread representative of their commission portion, and characterized as the difference between buy and sell prices at the point the trader enters the market. The spread is calculated as points x stake, thus the commission portion is larger for larger trades. As a trader looking to maximize returns and avoid incurring excessive trading costs, finding ways to reduce the size of the spread and make transactions cheaper on an ongoing basis should be hotly pursued.
The Brokerage Market
In an environment where every single point counts, having a provider that is cheaper from the off gives traders a real, tangible advantage over others engaged in the markets, which makes it notionally easier to profit from each position. Fortunately, the brokerage market online is highly competitive, and traders can make use of comparison sites and independent, third party reviews in helping exploit that competition to their advantage.
The width of spreads varies from broker to broker, and even from market to market, almost to the extent of making it difficult to keep tabs on who’s pricing what. With so many brokers vying for their share of the pie, taking the time out to find the optimum provider may be an initial time commitment worth trading.
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The Effect of Savings
Loyalty is something many brokers take for granted, with the friction between researching and switching brokers often enough to dissuade traders from seeking a better deal elsewhere. But for shrewd traders, keen to make the most from their capital, the incentives for switching to an alternative provider offering cheaper spreads on key traded markets is considerable – both immediately and in the future. While there is the initial effect in making each trade cheaper, the cumulative benefits of saving, say, a point on every trade can quickly mount up.
One point per trade can quickly become 10 points a week or more, and when each point is a multiple of a stake, this translates into real savings. But this can also be viewed as relieving a handicap on your portfolio, meaning positions have proportionately less distance to travel into profit which in turn makes trading capital work that bit harder.
Finding the tightest spreads available isn’t just a nice idea – it’s at the core of what it takes to be successful in the markets. As a trader looking to build a profitable portfolio and generate a return on investment, the need for being ruthless and professional in guarding against excessive costs should never be underestimated.
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