Forex trading and spread betting are the new forms of investment apart from the conventional ones which the traders now look to. The traders can now make more profit without any tax from spread betting. With spread betting one can make profit even when the market is up or down. Chances of making profits exist both in the rising and falling market, if the market is predicted precisely. For example, if you assume, the expected quarterly result for Walmart is predicted to bring its price down, and your assumption matches with it, you will make profits. On the contrary if you assume it to go up and it matches then also you will make profits. So it works both ways.
Leveraged products – A brief
The modus operandi of the leveraged products is based on thrust with a balancing position. You operate with much less deposit than the trade with which you will be operating. There is a catch to it: the results of the spread betting or forex will tilt either way, to your advantage or otherwise. A percentage of the size of your trade has to be made, as a deposit, to start. The margin requirement, any amount between 1% to 10 % of the total value, is in vogue depending on the type of trade.
You make a 5 % deposit means; an amount of $500 will be required for a stated position of $10,000, say in any of the technology stocks like Google, Apple or Facebook. Still the trade is carried out to the value of $ 10,000, with liability for all outstanding payments.
Before starting on spread betting and forex, the traders should know what is a leveraged product as compared to conventional binary options products which will be without leverage. The leveraged products give profits or losses substantially than your initial deposit. This does not happen in the binary options trading.
How spread betting work
You can use spread bets to make profits irrespective of whether the markets are rising or falling. The ‘spread’ in spread betting is the difference between our SELL price and our BUY price. If you think the price is going to rise you BUY, or ‘go long’, and if you think the price is going to fall you SELL, or ‘go short’. If you go long (buy) with call options, your profits will rise in line with any increase in that price. If you go short (sell) with put options, your profits will rise in line with any fall. Similarly, if you go long on the price and the underlying stock price falls, you will incur losses.
If you had bought the above index at 6501 and predicted a rise in the price over the next 14 days at a stake of $ 10 per point, for every point rise you would make $10. After 15 days if it is sold at 6540, the spread would be 39 points and the profit made would be $390. This profit will be tax free. In case the price had fallen by 39 points the loss would be $390.
In forex trading i.e. trading currencies the points are known as pips. The calculations are pretty much similar as in the spread betting.
And that’s what spread betting in action looks like!
