Spread Betting on Shares
TRADING SHARES / STOCKS / EQUITIES
Spread betting on shares is a great tax-free alternative to regular share dealing, where you can make a profit from falling prices as well as from rising ones. Betting on Individual shares is no different to betting on Indices – the leverage is the same. You are betting your stake per point movement of the price of the share.
WHAT COMPANIES’ SHARES CAN I INVEST IN?
Most companies offer bets on thousands of different companies. They can vary from one spread betting firm to another, but usually include almost all of the shares from the main stock indices around the world.
The FTSE 100 is made up of the 100 biggest companies on the London Stock Exchange by market capitalisation. These companies usually have strong balance sheets and some many are household names, which are easy to keep track of. They are less likely to swing violently one way or another in The FTSE 250 Index is the 250 next biggest companies, and usually got a higher growth potential, and appeal to more informed investors. AIM shares is a market allowing smaller companies to raise money, and can be volatile and open to lots of speculation, with a wider spread.
Wall Street Shares:
The Dow Jones Industrial Average, the S&P 500 and NASDAQ are the biggest indices on Wall Street and contain the shares of some of the biggest companies in the world, mostly American ones.
Stocks and equities from the major European exchanges like German DAX30 and French CAC40. These include major companies like BMW, and are the biggest firms by market cap.
WHY SHOULD I SPREAD BET INSTEAD OF JUST BUYING THE SHARES?
- It’s tax free
- No Commission Fees
- It’s leveraged – so your initial outlay is just a fraction of what it would cost to buy the shares in normal trading, yet you could end up making (or losing) the same amount of money
TYPES OF BETS – DAILY BETS VS FUTURE BETS
Daily Bets are a cheaper way to invest for a short term trader than buying and selling shares through a broker. These bets are closed on the same day they are opened on the closing bid/offer price of the share. Many traders choose to roll-over these daily bets to the next day. This usually incurs an overnight financing cost. These rollover costs can add up if you keep a Rolling Daily Bet open over an extended period – in that case it may be a better idea to get a futures bet. Share Futures allow you bet on the rise or fall in share price over periods of up to nine months. They are offered on a quarterly basis – March/June/September/December. So if it’s May – the futures would be offered on the price in June, September and December. The spreads on futures shares are wider, because they take into account the costs. But you don’t have to wait until the end of the contract to close the bet – you can close a futures spread bet at any time when you are satisfied with the profit or loss it is currently making.
TIPS FOR SPREAD BETTING ON INDIVIDUAL SHARES
The spread on a share will always be wider than the buy and sell spread on actual share in the underlying market. It’s not a good idea to spread bet on a share for an extended period because the costs of financing a rolling bet can add up. But spread betting on shares is a good way of speculating over the short to medium term. Always use stop-loss orders to mitigate against share price moves against you.
- Smaller firms tend to be more volatile in share price than big companies with big market capitalisation listed in FTSE, for example.
- Shares tend to go up in price slower than they fall.
- Share prices can move a lot in reaction to economic news and market developments.
- Watch out for takeover speculation, or results announcement, boardroom changes or new product announcements.
- Remember sentiment counts for a lot – so even if results published are good, this may have been already factored-in by investors and the price may not rise.
RESOURCES TO KEEP INFORMED ABOUT INDIVIDUAL SHARES
- Market updates
- Economic Indicators
- Broker Ratings
- News and product developments