In market terms spread betting companies quote two figures for an index which is known as the spread. They quote a high and a low value and the investors either sells at the low price, or buys at the high price. If the index rises and you buy high then you sell out and at the close of business at a profit relative to how right you were. For example, if you predicted an index to close high and it closed 6 points above the quoted figure, your profit will be calculated at 6 times your stake. The risk is that if you go low (sell) and the index rises, you make a loss, also calculated by the margin meaning that you can lose more than you invested.

Spread betting is a cost effective way of trading. Just like share trading you can speculate on stocks and shares but because there are no brokers there are no Brokers Fees and no Commissions. If you are a UK resident there is currently no Income Tax or Capital Gains Tax on Spread Betting returns.

Spread betting is popular but carries a high level of risk. There are however no commission charges, fees and the profits are tax free.

Spread betters try to minimise the risk by keeping themselves well informed and off setting losses (for example making alternative bets halfway through a day if predictions were wrong).

Looking to try spread betting?

Financial Spreads offer spread bets on the FTSE 100, Crude Oil, Gold and a wide range of UK and international shares

Contracts for difference (CFD’s)

A contract for difference enables users to speculate on share price movements without owning the underlying shares. Investors trade on margin and pay a deposit (typically 10 – 20%) of the contract’s full value. There are no fixed timescales allowing users to take long or short positions contrasting them from futures contracts.

There are many advantages and charges to be aware of when considering CFD’s so research is essential.

For detailed information on CFD’s click here http://en.wikipedia.org/wiki/Contracts_for_difference

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