The discussion as to the suitability of financial spread betting as a way to invest is often debated. Indeed, it is just a type of online gambling – isn’t it? To achieve better insight of the discussion, it is wise to look at the cold facts. Spread betting is a derivatives product offered by online financial broking firms. They offer a platform to anybody who wants to speculate and effectively guess on financial market fluctuations. Thus, the trader never really buys the underlying product, and may make money from falling markets just the same as from rising ones. Spread betting is technically termed as a financial product and is only offered by firms that are governed by the FSA. Trading is based on margin, similarly to CFDs trading. In the majority of cases however, spread betting traders are not subject to capital gains tax and often commission is not charged. With a comparatively small amount of money an investor can commence placing so-called ‘bets’ on a range of markets. These can include shares, indices, commodities and currencies.
Bets opened by a spread better are never usually open for longer than 24 hours – it is a quick means of trade.Thus, given these elementary facts, can we conclude that spread betting is officially a form of gambling? The answer is “no”. As a completely regulated activity, financial spread betting cannot be categorized as a form of gambling. A spread betting broker must adhere to a strict code of conduct to permitted to offer accounts and a platform for trade.In fact, many people who partake in other versions of direct trade, like FX, partake in financial spread betting as an additional means to make returns. But is it a sensible way to invest?
Recently, high-risk speculation on the foreign exchange market has been highlighted by lots of ministers and economists who argue that it can lead to serious economic financial fallout. A few have even accused derivatives trading as one of the root causes of the deep downturn of 2009. As traders can make returns from a retreating market, commentators have drawn a conclusion that risk-taking can end up aggressive and uncontrolled – thus bringing the problems of currencies like the euro in the last few months.Whoever does decide to partake in financial spread betting must make themselves aware of the serious level of risk that is involved. Foreign exchange markets can change suddenly and unpredictably, meaning a position that might have appeared to be winning just now could suddenly switch in the other direction, leaving the trader with significant losses.