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What is “Spread betting” and What are differences between SpreadBetting and trading?
Spread betting and trading are two very different things. Yet, many people think that they are the same thing, or they simply don’t know the differences. There are several key differences between the two.
Firstly, in spread betting, you are not actually buying or selling anything (e.g. a commodity such as the Brent Crude or a share in a company like Apple.) You are simple betting on its future value.
For example, if you believe the value of Gold is going to increase within the next day, you would “buy” gold and “sell” it the next day to make a profit. Instead of choosing what quantity to buy (like in trading), you decide how much you want to make or lose per point that the value of that stock changes e.g. £100 per point etc. So if did this at £100 per point and the value of gold went up by 10 points, you would have made £1000 (if you choose to “sell” after the increase.)
In trading, it is a completely different situation. You are actually buying that stock and actually selling it. You are not just speculating on its future value. But the main principle is the same, you want to buy when the value of a stock is low, and sell when the value increases.
You should note that with spread betting, you can lose more money that you have invested in a stock. For example, if you “buy” Gold at £100 per point and if you needed £500 to do this, and then if the value of gold went down by 6 points, you would be in debt of £100. However, this also works the other way. You can make more money by spread betting than by trading, even if you only start off with a small amount of money.
With trading, you can only lose how much you invest. For example, if you buy 1 share in Wallmart INC at the price of £40 and the after a week the company loses all of its value and each share has no value at all, then you will have only your £40 and you will not be in any debt. If this was to happen in spread betting, you would be in several thousands of pounds of debt. In fact, in early 2015, a teaching assistant whose annual salary was just around £18,000 became £220,000 in debt after he made a bad spread betting decision.
In many countries, such as the United Kingdom, you do not have to pay any tax on your earnings from spread betting. To be eligible for this tax break, you must have another job (spread betting must not be your only source of income.) This is a key benefit, as you have to pay income tax on your trading earnings. This can be in excess of 50% in some European countries, especially if you are earning large sums of money.
In summary, Spread Betting certainly sounds like an excellent way to make money. However, before you invest your hard earned cash into it, I suggest that you first open a demo account to get started. This allows you to familiarise yourself with the platform and try out different strategies. Some brokers allows you to open a demo spread betting account and their platform is user friendly and rather easy to use. We recommend you open an account in ETX Capital. You should note that there may be slight differences between spread betting using real money in comparison to virtual money (on a demo account.) The main difference will be the psychological element, which will put you under a lot of pressure and affect your decisions.