Now that we know what spread betting is, there are some frequently asked questions like "What can I trade?", "How much it costs?" or "How to choose a broker?"
What you can trade really depends on each broker, anyway, here’s a list of the most common assets offered by the brokers:
What can I trade with spread betting?
- Forex: EUR/USD, GBP/USD, USD/JPY, USD/CHF and AUD/USD
- Energies: Oil, Natural Gas
- Metals: XAU/USD (Gold) and Silver (XAG/USD)
- Indices: FTSE100, S&P 500, Dow Jones,Nasdaq, EuroStoxx 50, Hang Seng, Shanghai Composite, DAX
- Stocks: Apple, Boeing, Google, Ford, CitiGroup
- Interest rates: Libor, 10 years Treasury Bonds
How much it costs?
The cost of spread betting for most brokers is basically the spread which is the difference between the sell and buy price, for example:
EURUSD = 1.3030/1.3035, the difference is calculated: 1.3035-1.3030 = .0005; so .0005 is our cost per unit traded, hence, we can assume that the wider the spread, the more expensive the trading cost.
Also see spread betting examples here
How to choose a spread betting broker?
The final question is probably the most important, how to choose our spread betting broker.
Spread betting is the newest trend in financial markets and that’s the reason for the lack of regulatory entities, indeed, only UK FSA recognizes Spread betting besides a few of other off-shore authorities, and the rest of the countries tried to regulate spread betting through Gaming and Gambling laws and regulations. Said that, spread betting is always exposed to the risk of scam and online fraud since is perceived as a bet and not an investment instrument. What we recommend is to look for UK regulated brokers.
Another thing to consider is whether the broker fits our trading requirements: minimum deposit, spreads, margin call levels, range of markets (the instruments we can trade) etc.
The minimum deposit often is between 50-100 USD, but be careful about brokers that only ask for 1 USD – you will surely discover that it’s not possible to trade with just 1 USD deposit. Think about this, how much you can really buy with a dollar? The logical answer is Not much.
The margin call is the limit at which your positions are closed if the market is going against you, some brokers close at 95% some others at the 100% and a few others up to 105%; let’s say you bet 5 USD per pip in GBPUSD with 100 USD of initial deposit, the pound is losing 15 pips = 75 USD because (15 pips x 5 USD per pip = 75 USD), if your broker allows a margin of 95%, you only have 4 more pips before your positions close, if your broker allows 100% you still have 5 more pips and if your broker allows 105% there 6 more pips to go.
Finally, the range of markets refers to the instruments offered for trading. We encourage you to set up your own goals and check if the broker meets your requirements needed to accomplish your investment goals before you sign a contract.
Finally, we urge you to check the reviews from real clients; it could be difficult to find reviews of such a new product, but, if some of these brokers have already treated traders unfairly, for sure, there will be comments about this on the Internet. Signs to look for in the reviews and on forums: complains about strange/unrealistic prices in the platform, false price peaks and movements that never happened (when comparing with other brokers), refusal of withdrawal requests or unexplained delays, clocked accounts etc.
Overall, spread betting is still perceived as a risky market, along with binary options trading. If you decided to try spread betting, simply remember to never risk money you can’t afford to lose.
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