We are now well into 2010 and putting the recession behind us.
Judging from the trading activity I am seeing, many investors are learning from past mistakes and deciding to take greater control of their finances.
Some investors are looking for more tax efficient schemes. Others want to diversify their existing portfolios.
The one thing you can see in the newspapers and financial websites is that more and more people are turning away from just having a pension and a few stocks and shares. Many pensions became worthless during the recession. Other pension funds rebounded incredibly in the second half of 2009 but have given the holders a few too many scares along the way.
One style of trading though, namely financial spread betting, is gaining popularity. When you look at the speed at which you can trade, the number of trading opportunities and take into account the easy access to global markets then it is worth exploring further.
There are downsides to all forms of investing and with spread trading you need to be careful because you can lose more than your initial investment.
It is worth questioning, as with all trading, why bother? Why take on the risk?
I invest through a number of formats but for short term trades I find a spread betting account beneficial on a number of fronts:
1) Spread betting is tax free*. You are not buying and selling any assets, rights or stocks. You are merely speculating on the future price of a financial market.
2) You can speculate on a large variety of markets including stock market indices, currencies, commodities and stock and shares.
3) Being able to 'sell' markets provides some useful opportunities. If your analysis leads to you believe that the price of gold will go up, you can bet on it to go up. With spread betting though, if you think that a particular index, share, commodity etc w
4) The 24-hour trading that some spread betting firms offer on key markets also provides opportunities. Whilst the underlying financial instrument may be closed you can still place trades on markets like Oil, Gold, the FTSE 100 and GBP/USD from Sunday night all the way through to Friday evening.
As discussed though, investing does have its negative side. These days though, there are steps you can take to reduce your level of risk. You can add a Guaranteed Stop Loss Order to your positions to help reduce your risk level.
If you start losing money on a market and the market continues to move in the wrong direction then a Guaranteed Stop Loss order will close the bet when it reaches the pre-determined Stop Loss level that you set. This will limit your loss even if the market is 'Gapping'.
Whilst there are steps you can take to protect your downside please ensure that spread betting matches your investment requirements. Familiarise yourself with the risks. Spread betting carries a high level of risk to your capital. Seek independent advice where necessary.
And finally, if you are interested but still wary of trying new trading formats then it is worth having a look at a spread trading practice account.
A practice or demo account simply lets you trade the markets with virtual funds and is, therefore, risk free. If you are less familiar with this form of trading then a little practice should help you understand the positive and negatives as well as the various types of bet you can place.
* According to UK tax law. Tax laws may vary if you live outside of the UK and can vary from time to time.
The author is a seasoned financial author offering strategic and tactical trading views on the financial spread betting markets.
