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  • 8/14/2019 Financial Spread Betting Vince Stanzione Sunday Times

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    July 26, 2009

    Place your bets to play the marketSpread betting was once the preserve of City traders, but now it is open to anyone for a modest

    stake

    Jennifer Hill

    Volatility in financial markets has wiped billions off the value of businesses and

    pension funds but it has not been bad for everyone, as IG Group, the financial

    spread-betting company, proved last week.

    The group, which owns IG Index the UKs biggest spread betting platform

    announced recession-busting annual profits, up 30% at 126m.

    Interest in spread betting has hit an all-time high. Once seen as the domain of City

    boys with the knowledge and risk appetite to gamble thousands of pounds taking

    a punt on the direction of anything from the price of a single share or the level of a

    stock market index to the gold or oil price it has now moved into the mainstream.

    Savers and investors, ravaged by historically low interest rates and the recent bear

    market, are seeking out new ways to make money. In the past year weve seen

    spread-betting clients jump 50% and overall trading volumes have doubled, said

    Asghar Hussain at trading platform Interactive Investor. We expect the trend to

    continue. With such low interest rates on offer at the banks and confidence returning

    to the markets, investors are looking for other ways to grow their capital.

    The FTSE 100 index is down over the past one, three, five and even 10 years

    losing 26.5% over a decade and IG chief executive Tim Howkins believes the

    traditional long-term buy-and-hold investment approach has been discredited.

    About 2,000 customers sign up to its trading platform every month. So, what is

    spread betting and does it work in rising, as well as falling, markets? We give ourbeginners guide to armchair trading:

    What is spread betting?

    It allows investors to place a bet on the movement of a share or other financial instrument without owning it. You can

    trade on individual shares (HSBC, for example), indexes (the FTSE 100, Dow Jones or Halifax house price index),

    commodities (oil or gold), currencies (the pound versus the euro or dollar) and interest rates.

    Punters profit on the difference between closing and opening prices if they get it right. Say you believe the FTSE

    100 will rise. You can buy at the price quoted by the spread-betting company for a stake of , say, 1 a point.

    For every point the market rises in your favour, you make 1. If you place a buy bet and the market falls, you lose

    1 a point.

    If you believe an index or share or commodity price is overvalued and will lose value, you sell the market and

    profit f rom falling prices (or lose money from rising prices).

    What is the spread?

    Also known as the dealing spread, it is simply the difference between the price at which you can buy and the price at

    which you can sell. When opening or closing a bet, you buy at the upper end of the spread and sell at the lower.

    For example, say the FTSE 100 was standing at 4,500.5. A spread-betting company might quote a spread of 4,500 to

    4,501. You believe the index will rise, so you buy 5 a point at the upper end of the spread or 4,501. The market rises

    to 4,601, so you close your trade, and make the difference between the opening and closing price (so, 100 points)

    From The Sunday Times

    r Friendly http://www.timesonline.co.uk/tol/money/investment/article672751

    28/07/20

  • 8/14/2019 Financial Spread Betting Vince Stanzione Sunday Times

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    multiplied by your stake of 5 500. If the market went against you to the same degree, you would lose 500.

    What are the pros?

    Recent volatility in markets has increased the appeal of spread betting as it allows punters to profit in any market

    conditions. Spread betters can place a punt with as little as 1 and move in and out of bets quickly, as they dont have

    to buy and sell stock.

    Another big draw is the low cost. It is classified as gambling, which means profits are free of capital gains and income

    tax, and you avoid 0.5% stamp duty when you deal. There are no fund management fees or broker commissions to be

    paid either.

    In addition, spread betting allows you to profit from the market for a fraction of the cost of normal shares. Instead of

    paying the full face value, you put up a deposit, known as trading on margin.

    A 1 a point bet on the FTSE 100 at Capital Spreads would mean a 30 deposit so, in the above example, you would

    have to put down 150 compared with a 500 profit.

    Does it work in rising markets?

    Its easy to see the attraction of profiting from falling prices but the FTSE 100 last week enjoyed its longest

    consecutive winning streak in four years, so is the rise in demand for spread betting over?

    No, according to Angus Campbell at Capital Spreads. The stock market might have turned the corner but weve seen

    just how volatile it can be and the ability to sell the market is a useful tool, not only in bear markets bull markets arenot without their turbulent times too.

    And the cons?

    Wild swings in markets also raise the prospect of losses running out of control. You can, however, set up a stop loss

    so that a position will automatically be closed if a share price or index reaches a certain level.

    Although there is an added cost to this, it means that you can put a floor on your losses (as well as lock in profits).

    How can I get started?

    Spread betting is offered by groups such as IG Index, Capital Spreads, CMC Markets, Interactive Investor and Cantor

    Index, as well as brokers including Hargreaves Lansdown and TD Waterhouse. Some offer demonstration accounts,

    where clients can trade with virtual funds until they are ready to take the plunge.

    How much will it cost?

    You do not usually pay commission or fees but you have to pay a deposit. This varies from company to company and

    depends what youre betting on, but is typically around 5% of the total transaction value.

    28/07/20

    Free Information on Making Money from Financial Spread Betting go to

    www.fintrader.net

    http://fintrader.net/http://fintrader.net/