If you are an amateur investor looking to diversify and add flexibility to your portfolio while increasing tax-free profits at the same time, then spread betting could be the ideal opportunity for you.
According to award-winning financial experts IG, spread betting enables you to take a position on whether you think a market will rise or fall, without having to buy the underlying asset. This leveraged product means you only have to put down a small deposit for a much bigger market exposure too.
But along with making any investment capital go further, spread betting can also force you to lose more than your initial deposit. So, to maximise the plus points and minimise the pitfalls, here is everything you need to know about spread betting.
Types of spread bets
Spread betting takes place on a single trading platform, enabling you to deal in products from all over the world. The main types of spread bets are:
- Share bets – Most amateur investors’ first port of call will be share bets, as it enables you to trade the price movements of domestic and foreign markets.
- Commodity bets – The commodity boom in recent years has made this investment category rather lucrative. Trading products like crude oil enables you to spread your bets conveniently and offers great portfolio diversification.
- Foreign exchange (Forex or FX) bets – This is the world’s most traded market where you deal in the relative value of two currencies. Although FX trading provides superb flexibility, it can be rather volatile too.
- Index bets – By placing a bet over an index like the FTSE 100 Index or the Dow Jones Industrial Average, traders benefit from more exposure to the wider market.
- Interest rate bets – Another way of adding diversifiation to your portfolio, interest rate bets place particular emphasis on short-term notes and longer-term bonds.
Influences on spread betting
Prices for commodities and interest rate products don’t move randomly; they are affected by a number of different market and economic factors that will need to be taken into account when trading.
- Energy stocks – These are especially motivated by geopolitical issues, as the market usually assumes that supplies will be limited.
- Grains – Crop reports regularly help with estimates, but the weather can have an impact on prices too.
- Livestock – Again, this is largely dependent on the weather and other seasonal factors.
- Industrial and precious metals – Prices fluctuate according to global economic activity and retail pressures.
- Treasuries – Inflation is one of the major factors that has an influence on the yields paid by treasuries.
Getting started and managing your trades
The easiest way to get started with spread betting is to enlist the services of a specialist provider. From stockbrokers and financial advisers to banks and bookies, these firms can help maximise your returns thanks to various trading tools and expert insight into market conditions.
However, spread bets are generally a non-advisory product and you will have to take full responsibility for your trade decisions. Therefore, it makes sense to do plenty of research into the different orders available.