By Thomas Bainbridge
The markets are looking rather fidgety at the moment and there’s a lot of focus on the Irish debt problems. The knives will be out for any bank with exposure to the Emerald Isle and it is difficult to imagine that the European Central Bank will have much sympathy for any such institutions. There are obvious fears for further contagion with property debt in Spain still concerning investors.
The Dow Jones, German DAX 30 and UK FTSE 100 have all rallied strongly since August, and all bull runs will naturally run into profit taking periods. The difficult aspect for spread betting investors is distinguishing between a pull back and an overall market reversal. Traders are unlikely to worry just yet though as we appear to be reacting to isolated factors which are, hopefully, just installing a bit of caution.
In fact, according to a Paddypowertrader report, most stock markets have a rather large buffer before they will concern the technical investors. “The FTSE 100, on a trend basis, is still well within a bull trend and that will be the case even if that market drops 3-4% to 5500. For the FTSE there is near term price support at 5730/5735 and more solid support at 5665/5670” it read.
Of course, if you trade the markets you will expose yourself to some risks. Whether you invest in CFDs, stocks and shares, spread bets or Exchange Traded Funds, you can lose money.
So what should you do if you are considering trading the markets? What if you just want to risk a few hundred, rather than a few thousand, Euros, Dollars or Pounds? What should you do if you only want a small amount of exposure to the markets? In the UK, and increasingly in the international community, investors are turning to financial spread betting.
Whilst planning your financial investments though, there are, as stated above, risks when you trade. Any investment can lose money. Share trading, buying a house and Exchange Traded Funds can all lead to losses. With spread betting, these losses can be larger than your initial stake.
It is also important to realise that spread bets do carry a high level of risk. Before trading, ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks. Seek independent advice where necessary.
The real beauty of spread trading is the range of advantages. Here are a few:
1) One advantage is that financial spread trading provides a wide range of financial markets on which you can speculate, including commodities, currencies, stock market indices and equities markets.
2) Because you are dealing with a spread betting firm, your trades do not incur any brokers’ fees.
3) There is no exchange of any shares, assets or resources; you simply speculate on the future value of a given market. This means that there is no income tax or capital gains tax on spread bets*.
4) Unlike normal share trading, investors can take short positions; spread betting lets you trade in both directions. This means that, if your research leads you to think that a stock market like the Dow Jones or FTSE 100 is going to increase, you can spread bet on it to go up. If you think the Dow or FTSE will decrease then you can spread bet on them to go down.
Before you trade though, bear in mind that using smaller stakes and employing Stop Losses can help to reduce your risks.
* According to UK tax law. If you pay tax in a jurisdiction other than the UK then this may be different.
About the Author
A leading financial author based in the heart of London’s Canary Wharf. Thomas Bainbridge is a respected commentator on the financial markets including the Financial Spreads markets.
