Several years ago trading stocks would have been considered something that was done by wealthy investors through a phone call to a broker. This was the era of shares trading which existed before the internet began to dominate the way individuals can speculate of the prices of shares going both up and down. The introduction of online brokers allowed not only shares to be traded in the traditional format of actually buying a small stake in the company but also in derived markets designed for much faster transactions.

Stock trading moved from something done over the telephone or face-to-face by investors looking perhaps to hold their favourite company’s shares for several years, to the ability to buy and sell the same shares instantly form your own home. The birth of spread trading stocks moved this development further by creating markets that mimicked that of the underlying stock without any ownership of the traded shares occurring. These derived markets allow the spread trading of stocks in either direction and have entirely lost the barrier of exclusivity that many stuffy brokers would maintain several years ago. The revolution in making the spread trading of stocks available to everyone has seen the industry grow wildly over the past ten years and develop into a sophisticated, yet highly accessible, way for individual traders to make money.

Shares Spread Betting

Where to spread bet

Spread betting is available on sectors and indices as well as individual shares. However, the advantage of spread betting on individual shares is that it is possible to get your hands on far more specific information about the company, such as profit and loss accounts and product information. With indices spread betting it is necessary to forecast what the net result will be, taking into account a number of different companies’ performances. It is also much more difficult to develop the same level of knowledge about each individual component.

Spread betting profits are free from Capital Gains Tax as well as stamp duty, unlike other market gains and for the majority of individuals, are also free from Income Tax.

There are different ways to spread bet on shares, depending on the length of time you want to hold the position open. It is possible to have a short term bet, where the position is opened and closed within the same trading day as well as those that roll over to the next day. However, as there is a finance charge for every day the spread bet is rolled over, for anything longer than a month, it would be more cost effective to spread bet using share futures.

Spread betting on shares, as well as indices in general, involves a spread that constantly changes, unlike many types of sports spread betting. The clearest way to show this in practice is with an example.

Going up or going down

You’re a big fan of Burberry and hear a whisper that a reduction in luxury goods import tax in China will be announced soon, which is news of particular interest as the company has a large following in the Far East. You believe that this could lead to a spike in the daily price of Burberry, so you opt to go high on the spread offered of 1524-1527 at £5 per point. It turns out that the rumour-mongers were right and the share price rockets up. You opt to close the trade whilst you are ahead and the spread offered is 1549-1552. The lower price (the selling price) is the one now applicable and you earn yourself a healthy £110 (final selling price 1549 – initial buying price 1527 = 22 multiplied by £5 stake = £110). If, however, you had clung on and the market took a nosedive, with a spread of 1510-1513 offered, you would be £85 worse off (final selling price 1510 – initial buying price 1527 = -17 points multiplied by £5 stake = £85).

Although spread betting on the stock market offers more opportunity for profits than the simple buying of stocks and shares, there is an equal chance of hefty losses, as seen from the example above. Opting to spread bet on stocks and shares does not mean that an investor has to put in any less research about a company’s performance, but it does provide individuals with the chance to make money even when the general trend is downwards. That is the very thing that makes spread betting seriously worth considering, especially in the current financial climate.

To spread trade stocks you can have as little as $10 to begin speculating on the future price movements of stocks and shares. Most spread betting providers add a fixed mark-up to the underlying market spread rather than charge commission. Spread trading shares has become one of the leading avenues for home and web-based workers to make money. Almost anyone can begin by opening a spread betting account and trade using real-time data and powerful charting software containing many of the features that professional traders use.

One of the great things about this type of trading is that you will never actually own any of the stock that you bet on. The idea is that, rather than buying a small stake in the company as an investment you place a ‘bet’ on which direction price will move in the future. Your bet will make or lose money depending on how much you have placed per point movement and therefore the potential profits on shares that keep rising or falling can be very large.

Furthermore, spread trading stocks is simple and straightforward. All online brokers have clear and accessible platforms to deposit funds and decide which direction you wish to bet and where you want to place your stop-loss and take-profit levels. Trading shares in this way means that you will be provided with a ‘spread’ by your broker and these are usually two prices between two and four points apart. The lower price is the price at which you will ‘sell’ or go short on the stock and the higher price is where you will ‘buy’ or go long on the stock. If you believe that the price will rise over the next few trading hours you may decide to place a long bet on a stock with your stop-loss ten points below. If you decide to bet $1 per point and after two hours the price has risen by 25 points you will be $25 in profit. Similarly if price falls to your stop-loss level of -10 points, your broker will automatically close your position at a loss of $25.

Spread trading stocks gives you the same experience as trading with traditional share trading. Many traders prefer spread betting because it is a more straightforward way to trade shares. Spread betters can easily work out their take-profit and stop loss positions based on the value of their bet. Unlike share trading in the traditional sense, because the stock is never actually owned it does not require the matching of buyers and sellers to enter or exit a trade.  Spread trading stocks allows quick gains to be realised without the problems of liquidity that many smaller stocks may experience. Traders can also go beyond simply spread trading stocks with almost all platforms offering a diverse range of markets including commodities such as oil and gold as well as at least the major forex pairs.

The advent of spread betting had allowed individual traders to trade markets quickly and efficiently without the need for a large amount of capital. Trading shares has been revolutionised by the arrival of dedicated spread betting platforms which allow the spread trading of stocks and a diverse range of other markets. Often you may only need between $10-50 to open one of these accounts which offer incentives such as low stakes for beginners and cash-back money guarantees on any initial losses. Spread betting stocks really has become the most popular way to trade price movements in individual companies.