Investment

How to use Spread Betting Wisely

May 3, 2016

One of the primary advantages of spread betting is the fact that as opposed to relying upon positive or negative market movements, the predicted price of a specific asset determines a winning or losing position. Therefore, the trader only needs to accurately determine the perceived future value of an instrument (such as a stock, an index or a commodity) within a set period of time. This is a great strategy for those who may be concerned about an overly bullish or bearish marketplace. Still, there are a few tips and tricks which are meant to lower the levels of risk associated with spread betting. Let’s take a look at what the professionals have to say.

Tight Spreads

The literal “spread” is the first factor to keep in mind. The spread is loosely defined as the difference between the buy and the sell price of a certain asset. Tight spreads are extremely important in this manner. A tighter spread signifies that it is easier to reach a set threshold. In turn, positions can be opened and closed quicker. This is conducive to higher profit margins. Extremely wide spreads are associated with longer trade intervals and as a result, heavier losses could occur.

Margin Trading

Many have heard the term “margins” used in reference to spread betting. Margin trading is the act of opening a discrete position while only having to deposit a small percentage of its total value. The obvious financial incentive here is that trades which are predicted correctly will enjoy massive returns. However, monumental losses can also occur from time to time. With margin rates as low as three per cent for shares within the United Kingdom, CMC Markets provides potentially lucrative opportunities. It is still advised that any trader fully appreciates the mechanics behind margin trading before opting for such a position.

Range of Products

There are two schools of thought in terms of diversification. Some experts believe that a trader should become extremely familiar with a single product to enjoy higher degrees of success. Others are firmly rooted in the notion that a diversified portfolio can ultimately enjoy the highest ROI. Regardless of which approach one takes, CMC Markets has a wide variety of assets to choose from. These include:

  • Forex products
  • Indices
  • Shares
  • Commodities
  • Treasuries

This highly flexible landscape enables both novices and seasoned traders the ability to enjoy a plethora of different options. As a result, one category can be used as a potential hedge against another. This is especially relevant when a specific sector (such as commodities) may not be experiencing as much movement as another arena (currency pairs can be an example here).

Anyone hoping to experience sustainable wealth through spread betting should make it a point to keep these suggestions in mind. For even more information, it is recommended that the spread betting section of CMC Markets be browsed in more detail at your earliest possible convenience.