Sue Johnson asked:
Financial spread betting has become phenomenally popular in places like the UK and Australia. And for good reason! Spreadbetting has a number of outstanding features when compared with conventional stock trading. First, let’s explore the concept of spread betting in some detail.
In its purest sense, financial spreadbetting is simply a form of derivative trading, using a derivative instrument that mimics the price variations of an underlying financial instrument, such as stocks and shares, currency pairs, stock market indices, and government bonds.
You can think of a stock spreadbet as a derivative on a particular individual stock. Like standard derivative instruments, the value of the spreadbet is based on the value of the specific instrument that it tracks. The price of the bet is basically determined by the price of the underlying market that the bet is based on.
As aforementioned, spreadbetting has a number of distinct advantages over conventional stock trading.
Firstly, in the UK, share trading is subject to stamp duty which is 0.5% of the total transaction value. Spread betting allows a trader to avoid this cost. In this way, the trader is able to add this saved cost straight to the bottom-line.
Secondly, spread bets enable the ease of trading in both directions: buying to go long or selling to go short.
So, unlike conventional share dealing where the requirements for short selling are particularly cumbersome, with spread betting, one is able to sell an index, stock, commodity or currency short in much the same way that one is able to go long. A short seller simply reverses the order of trading transactions, selling first and then buying back at a lower price.Minnie