Spread betting is becoming a lucrative venture these days. While there are a plethora of traders who have become a part of this financial betting arena, there are many who are still wondering what this is all about.
Spread betting is one of the most tax efficient ways of speculating the price movement of the different global financial instruments, including treasuries, commodities, currency pairs, indices and shares.
Article in a Glance
What is Spread?
Spread betting derives its name from the word “spread” which all the providers cloak around the original market price of the asset. The trade costs factor in the two different prices.
Thus, you will always buy an asset for a price slightly higher than its principal market price and will always sell slightly below it. In the spread betting, you actually bet on whether the price of the financial asset will move above or below the given spread.
Tips for Choosing a Spread Betting Broker
Comparison of Spread Prices
The spread betting companies make money due to the price variance amid the “bid price”, that is, the price to purchase an asset and the “ask price” that is, the price for selling that asset. This difference is known as the spread and this also accounts for the fee paid to the broker for providing you an access to the market. Thus, choose a broker who offers the tightest spreads.
Last but not the least, the accessibility of the broker is also one of the most significant factors to consider when you are selecting a broker to associate with. Access to the broker’s customer service and broker’s reliability must be in your checklist.
These two factors are very important and thus, should be checked carefully while ensuring the credibility of the broker. As whenever a problem occurs with the trade, you would need the support fom the broker in order to sort out the problem and arrive at a solution.
Margin Trade Requirements
The margin trade requirements can vary significantly depending on the type of asset being traded and on the broker. Thus, always choose a broker whose margin requirement lies between 3 – 10 percent.
Variety of Offered Markets
Another vital factor to consider before zeroing down on a broker is the variety of markets that the broker can provide. This type of added flexibility in terms of the markets being provided as it allows the traders to get benefitted of the market conditions which might not be available to all the market participants.
Interest Charges of the Brokers
The broker’s interest charges should also be considered before choosing a broker. The interest charges are a vital aspect of the trade costs, especially for the traders who are considering long term trades.
Financial spread betting is typically traded on the margin and as these trades require you to borrow the trade capital from your broker, the interest charges on the borrowed capital can accumulate quite quickly and can impact your long term profits. Thus, choose a broker who asks for the lower interest rates.
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