Why would investors spread bet?

Andy Yates, Director of leading investment website DigitalLook.com explains why spread betting is not just for Christmas - and why investors should not ignore its subtle charms…
This article is taken from the Investor's Guide to Spread Betting. Download your free copy here.

First let me get a few things straight:

  • I’m not a leading world expert on the financial markets (but then again who is these days?).
  • I’m not going to reveal the hidden secret of untold market riches. If I knew would I really be wasting valuable trading time writing this guide?
  • I am fallible and I have yet to make the perfect trade or build the perfect portfolio.

So if you think this article is about a magical get rich quick formula - goodbye and good luck.

That’s better and I am glad I got that off my chest. Now let me tell you just what I am.

I am an investor. I care about investing my (very) hard earned cash in the right places and making a sensible and consistent return. That’s why I and my colleague Mark Pritchard set-up the financial research portal DigitalLook.com in the first place - to give us and investors just like us as much help as possible to put our money in the right place at the right time.

So why, I hear you cry (go on you can cry louder than that) is this guide about spread betting?

First, I should take a minute to outline a few assumptions I am making:

  • That you’re a bright spark (or at the very least have a bit of spark) and that I don’t have to go through the old example of how spread betting works (you can read more at track.adform.net/C/?bn=639001). You’ve also got a fair inkling of the stock market and how it works.
  • You have a computer with a decent internet connection.
  • You are willing to open your eyes rather than keep them screwed tightly shut.

So, at first glance spread betting, with its ‘in-out and shake it all about’ reputation may appear a million miles away from the relatively cerebral and less hyperventilating induced climes of your average long term investor.

You may be the person who wants to build a long term nest egg rather than worry about laying an egg every time you look at the FTSE.

However, one thing that we've learnt at Digital Look is that spread betting and investing can be firm bed fellows if you’re serious about your financial health.

Yes, investing is good for the long term - and given the recent turbulence probably a longer term than many had previously imagined. However, spread betting can be an important weapon in a modern investor’s armoury.

Let’s explode some common myths about spread betting:

1. Spread betting's for punters, not investors - Nonsense!

Used in the right way, spread betting is just another way to reach the same goal of backing an asset that moves the right way. Just think of spread betting as a useful tool to help our overall wealth-life balance with some important advantages over traditional trading methods.

While the punter just trades on a tip, the savvy investor researches their potential trades in detail and weighs up whether to spread bet or invest in the traditional way.

2. Spread betting's for traders - Oh come on!

Sure, spread betting attracts day traders, but why should they have all the fun? In these difficult times, you don't have to watch open-mouthed as your portfolio plummets. Used in the right way, spread betting can be used to hedge your longterm investment positions and provide some short-term pain relief.

And shouldn't private investors take opportunities to make money without paying tax? The Government could change their mind of course, but for now, spread betting doesn't attract CGT or stamp duty.

3. Capitalism is dead - long live socialism - Get real!

OK comrade, the foundations of the edifice that is capitalism have taken a bit of a battering. But that is more due to a temporary plumbing problem with the banks rather than subsidence. If you want to keep your money under the mattress and not take any risks then I wish you luck with your nice cup of tea and latest episode of Countdown...

Some final thoughts:

  • If you’re an investor you’d be foolish not to at least investigate spread betting.
  • Find out what it’s about and how it works and then see if it’s right for you.
  • I did and have found that – along with other forms of trading - it has its uses.
  • This guide will go on to explain how to make sure you use rather than abuse the advantages spread betting has to off er investors.

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Please remember that Spread Betting is a leveraged product and carries a high level of risk to your capital. It is possible to incur losses that exceed your initial investment. This product may not be suitable for all investors, therefore ensure you fully understand the risks involved and seek independent advice if necessary. You and CMC Markets, and not Digital Look, will be the counterparties to each Transaction. CMC Markets (i) executes transactions with you solely as principal and (ii) deals on an execution only basis - therefore CMC Markets is not under any obligation to provide any advice on the merits of any transaction. CMC Spreadbet Plc is authorised and regulated by the Financial Services Authority. *Tax laws can change.

Digital Look is an Appointed Representative of CMC Spreadbet Plc.

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