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Spread Betting and the Upside of Day Trading


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In part 1, Spread Betting and the Downside to Day Trading, we discussed some of the negatives and pitfalls of day trading and spread betting. But what about the positives? What are the benefits for the day traders who like the ease and convenience of spread betting?

1)Many companies offer daily rolling products eg the FTSE Rolling Daily. Traditional daily spread bets would be closed out at the end of the day. However spread betting companies are always coming up with new products and variations. Daily Rolling Bets are now one of the most popular markets and are replacing the previously popular quarterly futures trades. In short, with daily rolling bets you benefit from the tight spreads and you can automatically roll your bet over to the next day without having to close and re-open the trade.

a.If you are a buyer there will be a small overnight charge b.If you are a seller the spread betting company will even pay you a small overnight fee

2)If you do decide to trade over short periods of time then you may be better off spread betting than share trading. With equities you have to pay Stamp Duty which is not applicable to spread bets*. With Stamp Duty currently at 0.5% in the UK and 1% in Ireland that soon adds up over a large number of trades

3)Volatile markets. The FTSE 100, gold market, crude oil market etc are all volatile at the moment and you do need to make sure you place the correct trade. However with so many rapidly moving markets you do not need to worry about the width of the spread as much. Gold has traded a range of $100 over the last two months. The FTSE 100 is swinging 50-100 points on a daily basis. Crude Oil is currently trading a $9 dollar range. On a given day it can quite easily have a $2, $3 or even $5 range. So if the width of the crude oil spread is 5 cents with Capital Spreads and the market is moving 200 / 300+ cents in a single day then it is unlikely you will get caught out by the spread

4)Unlike 5 years ago there is now a lot of competition amongst the spread betting companies and that has led to narrower spreads, particularly on the daily spot markets and daily rolling markets. Many companies offer a 1 or 2 point spread on their daily FTSE 100 markets

5)Spread betting on daily markets is tax free. Whether you day trade and/or trade quarterly futures spread betting is still tax free*

6)Day trading can be a negative for those who cannot sit in front of the markets all day but it can benefit those who are free one or more days a week. So you work part-time or perhaps you are retired or work weekends and therefore are free during the week when the markets are open? Of course that may mean you have less funds to trade so you do need to be extra careful. And of course trading still needs effort and discipline not just the time. But if you are motivated and have the time then it can be a useful extra form of tax free income

7)There is already a large and established market for day trading shares but it is not as easy to gain exposure to markets like Gold and Crude Oil or indices like the Dow Jones, FTSE 100 or Nikkei 255. With companies like World Spreads you can easily and quickly gain exposure to these markets and trade many other Indices, Forex and Commodities markets. Naturally the US and Asian markets have different opening hours and note that the American markets do not all open at the same time, they have a staggered start

There are a number of pros and cons to this form of trading. Quick, tax free profits are always very tempting however make sure you understand the downside of each spread bet before you trade.

Spread betting carries a high level of risk to your funds. You can lose more than you initially invest. It may not suit all investors. Only speculate with funds that you can afford to lose. Ensure you understand the risks and seek independent financial advice if and when necessary.

* Tax law can change and/or may be different if you pay tax in a jurisdiction outside the UK.

About the Author

Situated in the centre of London's financial district the author is a well known commentator for some of the leading financial spread betting companies

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Article Published/Sorted/Amended on Scopulus 2008-09-02 22:28:22 in Business Articles

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