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One of the most lucrative options of investment in the online trading market nowadays is spread betting. Usually, there are three different types namely, financial, sports and fancy. Each of these types comes with exclusive features solely revolving around the concept of betting. There was a time when spread betting used to be quite unknown to many, but today, this is one of the most popular mechanisms, especially in the financial market.
Spread betting, first of all, works on the principle of guessing a particular result based on a certain spread that is basically used as the base or reference for any financial product such as bonds, commodities, equities, commodities and the like. The word ‘spread’ here means the variation between ‘bid’ or buy and ‘ask’ or sell prices. The betting involves guessing a possible outcome outside an aforementioned spread price of a derivative-based product in the financial market. Based on the specific outcome, the financial fate of a particular individual is decided upon in the online trading or other allied financial markets as well. The concept of spread betting started off in the year 1940 in the United States of America and gradually broke the boundaries of US and spread in London in 1970 followed by expanding in other parts of the world too. There are various utilities of spread betting in the financial market, which can be summarized as under:
- First and foremost, a person never owns an asset here. This is one of the main features that needs to be taken into account. In other words, a specific financial instrument never has the ownership of a participant and rather is a tool for price speculation as per a quote’s direction.
- The concept of commission, which is very much common in the financial trading market nowadays, is completely eliminated in case of spread betting because a particular provider of it gains earnings from the spread itself.
- The spread betting works on a primary principle of the trading market known as the trading contracts for differences (CFDs) whereby the leverage plays an important role.
- One of the most exciting characteristics of this is it is totally tax free in the United Kingdom which means that the profits coming out of spread betting do not have to bear the capital gains tax or any stamp duty as well. At the same time, the tax liabilities of an individual cannot be covered up with the losses made in it. This is an exclusive feature, because in almost all other conventional trading markets, tax payment on the dividend received from a financial instrument is mandatory. Since in spread betting, only the client and provider company are involved, therefore, there is no real ownership of shares and as a result, there is no stamp duty required here.
- This is a very flexible mode of trading because there is no need to buy an asset and a person can just speculate on the price movement of the market and acquire long or short positions according to the prevailing nature of the financial market.
- Spread betting today can be applied in a wide range of global markets and that too, 24×7, such as stock market indices, forex, bonds, individual equities, bonds and all other relevant niche markets, for example, ETF.
ETX capital is one of the most prominently used spread betting platforms that allow the traders to bet easily. However, as always advisable for any kind of trading, any move in this trading ought to be made judiciously.