Cheap Entry into Trading

I think most investors have got financial spread betting all wrong. They think it’s a tax-free trading toy for people who can afford to lose a lot of money (which they probably will). I consider financial spread betting as a cost-effective, albeit high risk way to establish speculative positions in many companies using very low starting capital.

It will take a while to get your head around the various markets available, the are literally hundreds and hundreds of available markets. A good starting point is to open a demo account with Ayondo. This affords you the opportunity to experience real markets without exposing yourself to any risks. Once you have mastered the basics try experimenting with limit and OCO orders.

Only consider opening a real money account when you have a complete grasp of the markets you intend trading. It is recommended you open a limited risk account initially so that you are fully aware of your maximum liability from the outset.

Spreadbets are often regarded as a relatively cheap way to get started in trading as you only need a small percentage of the total transaction value to open a spread trade. Some spread betting providers require a deposit of only 100 pounds or less. As long as leverage exposure is kept at a reasonable level, spread trades can be an economical entry into trading.

Say, you want to buy 5,000 shares of Dragon Oil shares (DGO.L) currently trading at 454p. If you were to go through the conventional route with a house broker, you would need at least £22,700 to open this trade. If you trade a spread bet of Dragon Oil shares company, you may only need about 10% of the total exposure to open the spread trade.

Let’s take an example:

To make it easy let’s say the share price is 100p buy, to buy 100,000 = £100,000 + stamp duty £500 and dealing just £10 and that’s cheap, = £100,510.

Now to buy the same amount with a spread betting company inc there is a spread on either side of the bet, let’s say useing gulf keystone pet ltd spread with IG as a example, so 100.21 to buy and would be extra .21 to sell, so you have to take in that, that’s a extra 0.42 spread compared to buy via traditional way just for starters, and at £1000 a point to = buying 100,000 traditional way that’s like £420, so you’re not like buying spread bet with stamp duty saving, some shares have much bigger spread either side as well, some have less like lloyds, depends a lot on what you are buying and the liquidity of the underlying market, the above is only a rough example to show you where I’m coming from, not very good explained really but you should get the jist of what I’m trying to convey.

You can trade spread bets just as easily as you trade individual stocks, as the price of a spreadbet will mirror the price of the underlying instrument. In fact, you can access thousands of assets around the world via spread bets. For equities some prefer direct market access to remove the risk of broker slippage.

If you would like to trade shares, indices and currencies from one account then the benefits of using a spread betting account over a securities one are pretty obvious when starting out. The two main wrappers for this taking the form of spread betting or CFDs the last of which is basically the same instrument but marketed to a different client base with different tax and regulatory regimes. The main advantages consist of being able to deal in smaller sizes than futures which is particularly useful when trading currencies and indices and the convenience of a single platform with competitive margins.

The downsides are of course that the prices quoted are offered to you by the provider although these should closely following the underlying exchange and hence market spreads can be that little wider. However, arbitrage keeps brokers in line but slippage can still be an issue with quote-driven platforms.

The over-the-counter foreign exchange industry is quite shady and being an unregulated market with no central Exchange, there is quite a propensity for dishonest practices and dubious ethics. Most brokers run ‘book’ businesses and they can practically quote whichever prices they like.

Try spread betting. Quick in and out, light on your feet… 😉


Low cost spread betting is both a good way to gain real-time experience of trading with real money and to understand the basic principles of protecting your capital rather than simply making profits. Most spread betting brokers will let you set up an account for as little as £10 as an initial deposit and many will offer you low-cost spread betting and promotional packages for new clients. These are incredibly good ways to gain a cheap and low-risk entry into spread betting and most popular brokers will offer tight spreads on several markets which will also limit the need to have a large deposit.

Starting with the offers, some brokers such as ETX Capital currently offer up to £150 cash back on any losses that you incur in the first ten days of trading. This essentially allows new traders to make absolutely risk free profits up to this limit and is the cheapest spread betting available during this period. Similarly, many brokers offer a demo trading account which really is the cheapest and nearest that you can get to a real trading experience. If you are looking to spread bet but want a more authentic experience IGindex offer a Tradesense introductory package for new spread betters. Not only does this provide a good source of education into spread betting but allows you to trade from as little as 10p per point.

Spread betting can be made cheaper and lower cost by trading markets with a tighter spread. This means that the broker does not make such a large commission between the buying and selling price and will ultimately give you an entry into the market which is closer to becoming profitable. One of the problems of trading some of the more exotic currency pairs is that they tend to have very wide spreads. This will result in a market entry which is several points away from break even from the start. Obviously, starting with a negative account will mean that your available capital has to be this much more to absorb this position and is certainly not a cheap spread betting option.

Looking for spreads of only 1pip or less (IG Index advertises some markets with just a 0.8 pip spread) will cost you less to enter the trade. Generally, most brokers will offer several currencies, including the EUR/USD and perhaps the FTSE 100 Index as standard 1pip spread markets. These are particularly good to trade because their liquidity also means that you are rarely likely to become trapped in a trade. Furthermore, the currencies which tend to have large spreads do so because they are the most volatile, in terms of keeping to low-cost spread betting these market have the potential to wipe out small accounts or at least test your deposit with the large stops required.

Risk management is an ideal way to practice cheap spread betting. By using sensible stops you can limit your losses and develop a trading style which doesn’t risk blowing your account on each trade. The idea ratio of risk is said to be around 2-3% risk on each trade and clearly this an ideal situation for beginners and can be applied effectively with the IG Index Tradesense package mentioned above. Even the smallest accounts can trade cheaply and easily with low stakes, low spreads and sensible stop-losses.

The problems with share ownership

Buying stocks and shares is probably the best known of all the different types of investment and allows an individual to own a small part of a company which they believe will perform well in the future. It can also be a way to support a company that has been floated on the stock market. However, if you opt to buy shares in order to make money you have to wait for the shares to rise in value and this can take some time. In addition, if the market is on a downward trend or the economy is particularly fragile, you may find your investment experiences a lot of turbulence and you end up with less than you put in for a considerable period of time.

Of course, if the company is robust and you are able to hang on for long enough, the price should eventually move higher. But that’s far from an ideal scenario for a novice investor who wants to gain experience in the market.

A market on a downward spiral is also bad news for experienced share traders and investors too. Many make money by a series of short-term deals and this can make profits far lower and difficult to find. Luckily, there is an alternative that allows investors to make the most of a falling market, but equally is well placed to benefit if prices rise.

A potential solution

Two way spreads are used in ventures such as spread betting and also contracts for difference. This term refers to an investment that has two possible prices. These are one for selling and one for buying and the two prices will have a small gap between them; this is known as the spread.

If you believe that the price of a particular share, or other market such as a commodity, will rise in value, you ‘buy’ the price and use the upper value in the spread. If you think the price will move lower you ‘sell’ the price and use the lower end of the spread.

This may sound a bit confusing at first because after all, you have nothing to sell! However, in spread betting, you never actually own the underlying shares, unlike conventional stock market trading. Instead, you are simply speculating on which way the price will move. The same principle applies for contracts for difference.

By opting to use a two way spread, the investor can profit even in a rapidly falling market, providing of course, they have made the right prediction. When a position is closed, the broker will use the opposite end of the spread to calculate winnings or losses. However, here’s one word of warning; it is possible to suffer heavy losses with a two way spread. There is no fixed amount that can be lost and the stake you place is per point of movement. In other words the more the market moves in the opposite direction that you predicted, the more out of pocket you will be. However, if you predict the right direction, the more the market swings, the more you profit.

Other benefits

The main advantage of using two way spreads is the ability to make money even in a difficult economic climate but there are some other benefits that are worth a mention. CFDs and spread betting are both free from stamp duty whilst the latter is also free from Capital Gains Tax. Because the underlying instrument is never actually owned, there is less red tape and in many cases, fewer fees and charges. Also, particularly with spread betting, because you never actually own anything in the market, there is no delay in having to sell; liquidity is never an issue.

Two way spreads are very easy to understand and whilst they are not without risk, the advantages they offer traders mean that they should be worth consideration for inclusion in every portfolio, at the very least as a hedging option against market falls.

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