Spread betting is a popular financial derivative in the UK market for no other reason than its tax-free system. For every investment you’ve heard of, there’s always an opportunity to spread a bet. However, that doesn’t necessarily mean you should choose to invest in every one of them. Like every other investment, there is a lot to consider when selecting, including liquidity, transparency, and technical considerations, among many others. Here’s a detailed look at different market options, factors influencing your choice, and what to consider before spreading your bet.
Forex
Spread betting in forex is by far the most popular choice for investors, and this is attributed to many reasons, the first being that the foreign exchange sector is the most liquid market. It is tradable 24 hours a day on all weekdays and open to investors across the continent, actively trading over $7 billion daily. In addition, the UK forex market is the 3rd largest hub in the world, and it accounts for 38.1% turnover in the sector, so there is significant liquidity, making it easier to get in and out of the market.
On a broad scale, this perk is great for minimising risk, which is what the spread betting market stands for. Another major factor that makes the forex space a top choice is its volatility. Because there’s a wide range of currency pairs, volatility ranges from low to medium and high. If you ever want to explore this market, starting with major pairs like GBP/USD, EUR/USD, and USD/JPY is advisable because they are less volatile.
Indices
The index market represents the performance of leading companies in the UK, starting with the FTSE 100, FTSE 250, and others. Indices might be the way to go if you want exposure across several markets. The system is built to enable diversification across several sectors and fields. For instance, you could invest in energy stocks, tech, and even industries simultaneously with indices. It gets better if you actively follow economic news and you’re able to apply these changing market dynamics to your investment choice. Index volatility mostly comes in moderation, and in most cases, you see the tides changing early enough to pull out or wait it out. Lastly, keep in mind that trading hours run 24/5.
Commodities
Gold and crude oil are two of the most popularly traded commodities for spread betting. They are relatively cheap to bet on. Another factor driving their demand is their ability to withstand inflation and other economic vices.
Many commodities are physical products with a constant demand and need from consumers. Agricultural products, for instance, are constantly in demand because, regardless of economic happenings, humans have needs for them and, therefore, must always make a purchase. At the same time, commodities like gold and other precious metals are safe-haven assets that investors rely on to evade risk in volatile periods. For these reasons, commodities are generally a safer option for spreading bets. Most brokers offer precious metals, energy, and agricultural products as options in this category.
Individual Shares
Individual shares, such as stocks or equities, represent a company’s ownership unit. You can spread bets on these company shares and speculate on their price movements for profit. The best part of this deal is that since you do not own the shares, you will not be required to pay stamp duty tax or bear other liabilities that come with owning the asset. At the same time, there is the advantage of going long or short and making a profit regardless of market movement. This means you profit from rising prices or declines. Spread bets on shares can be done on most listed exchanges, including the London Stock Exchange (LSE) and others like NASDAQ and NYSE (New York Stock Exchange).
ETFs
ETFs are assets that track an index and are traded like a stock on an exchange. As a stand-alone product, they are great for diversifying. However, with spread betting, you can take this potential to a whole new level. ETF spread betting is about speculating on price movements. Like every other variation, it offers perks like leverage, better tax treatment, and short and long positions. On top of that, it provides one of the broadest market access. This could be the best security to trade on if you want exposure to more sectors.
How To Choose the Right Market
The first step to this would be to know the types of markets available, and we’ve covered the most popular ones in the first part of this article. However, it is essential to review some other important factors when deciding. The first would be a personal choice based on risk appetite, interests, and capital. If you’re a cautious trader, indices like the FTSE 100 might be a great bet since they are reliable and less volatile. Assets like forex and small-cap shares are reserved for medium to high-volatility investors. Also, it’s essential to focus on trading what you understand. Prioritise researching and follow market news and industry professionals to gain relevant insights. Also, consider demo trading to familiarise yourself with the varying classes.
Balancing Risk and Rewards
As rewarding as financial markets can be, the risks can be extensive. This explains why investors are extra cautious when trading them. Choosing the right market isn’t about chasing the most significant wins. It’s about aligning your decisions with risk tolerance, strategies, and knowledge. Take an innovative approach today by finding the right balance.
