Killeens Financial - Spread Betting

Disclaimer: I am a relative newcomer to Stocks and Shares. I offer these pages, not as an expert, but as a way of sharing my experience. I believe that I can help other newcomers to understand this world, so often expressed either in impenetrable jargon or in endless verbiage. I can also guide them to sites that I found most useful. If you want investment advice, however, I suggest you approach those who hold themselves out to be experts, e.g., brokers, online or traditional.

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Spread Betting

Another type of Online Account to consider is Spread Betting. (E.g., Delta Index Spread Trading).

With this kind of account, you don't actually buy and sell shares, but bet on whether the share will rise or fall. Since you are not actually buying and selling shares, you don't have to pay Stamp Duty on the transaction (which applies to Irish and UK shares, but not to US shares), nor Capital Gains Tax. You may not, either, have to pay Income Tax. Taxes, however, can vary from country to country and from year to year, so check with the tax people before basing any decision on the tax position.

The transaction is processed "as if" you were buying or selling the shares, i.e., you place an order to buy or sell just as if you were buying or selling shares on a Spread Trading account, but you know that you are actually only betting on the share rising or falling.

Since you are not buying the shares, but only betting on the rise or fall, this is, more or less, the only amount that you have to put up when placing your bet. (Usually, you are required to place a limit on the amount of your potential loss by placing a Stop-Loss order to sell or buy if the price change goes against your bet, and are required to have enough funds in your account to cover that loss). As a result, it is as if you are buying shares by putting up only a small percentage of the purchase price (typically as little as 10%). You, therefore, make as much as 90% more profit (or loss) on the rise or fall of the share price than you would with Share Trading.

With Spread Betting your play is limited to the stocks and shares on offer by your broker, which will consist of the leading shares in the premier exchanges such as Nasdaq, Dow Jones and national exchanges. This will not include the potential money doubling stocks found amoung the small caps (i.e., small companies) on the lesser exchanges, such as the OTC Bulletin Board.

Of course, there are disadvantages as well as advantages with investing in Small Caps.

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