Tips to Increase your Profits in Spread Betting
Spread Betting is an extremely profitable form of derivative trading for those who know what they're doing. There are a ton of advantages to spread betting over regular share or CFD trading.
To begin with, the FSA (Financial Services Authority) in the UK classified spread betting as a form of gambling, and as such all profits derived from spread betting are tax-free. This means that any money you make from spread betting on financial indices such as the FTSE 100 are completely tax-free. You don't have to pay Stamp Duty either since there's no 3rd party involved and you are never officially owning the underwritten products.
The other advantage of financial spread betting is that broker's gives you huge leverage with your deposit. City Index and Capital Spreads for example give you 3% down to as low as 1% deposit margins for the mainUK markets. At Capital Spreads this means you can trade £1/point on theUK 100 rolling daily with just a £30 deposit. The 1% deposit margins at City Index mean that you can take up positions worth £10,000 with just an initial £100 deposit. The leverage that these firms gives you allows you to make massive profits from a small deposit. The downside of course is that you can lose far more than your initial deposit in spread betting, hence why it is such a high-risk form of gambling.
Tips for Improving your Profits in Spread Betting
There are a number of ways to help improve your trading strategy and profits from spread betting. The first thing I would recommend if you're a beginner is to educate yourself about spread betting. worldspreads for instance offer an advanced trading course for beginners worth more than £500. This includes 8 hours worth of live seminars, webinars and articles covering topics such as "trading on the stock market", "using candlestick charts", "technical analysis" and "risk-management".
Once you begin trading, you need to have a strict money management system to prevent yourself losing too much money in a single trade. It's recommended that you risk no more than 1% of your capital in a single trade, or if you're a beginner you might want to lower this to 0.5% or even 0.25%.
In order to calculate how much to stake when opening a position we can use the 1% bankroll rule above. Let's say that you have a total balance of £1,000. 1% of £1,000 equals £10, which means £10 is the maximum amount we want to risk in a new trade. If we set a conservative stop-loss of 10 points (the maximum you can lose before you your trade automatically closes) than we can afford to bet £1 per point. So, we might open a position on gold stock at 1400p, wagering £1 per point with a stop-loss of 1390p.
Finally, for really advanced trading guides you should invest in a spread betting book (you can get one free if you sign up to Tradefair) or research spread betting systems online. These will teach you how to use technical analysis and indicators such as Bollinger Bands and Moving Averages in order to make better, more sophisticated trades.
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