Don't let volatile markets frighten you off Isas
22 Feb 2012
Spread Betting
Financial spread betting is becoming increasingly popular as an alternative to traditional share dealing. It is a high risk investment and should only be considered if you fully understand the risks involved. Your capital is at risk - you could lose some or even all of it.
Predictions
Essentially, financial spread betting enables you to bet on whether a product will rise or fall. You do not actually buy or own the product or market that you have chosen to bet, you merely make a prediction on how the price or value of the underlying investment will move over a fixed period of time.
However, The profit (or indeed loss) comes from the change in price or value of the underlying investment over that time period.
There is a huge range of markets, sectors, indices now available to spread betters and all profits are tax free. This has attracted more and more investors, together with the easily available on-line services offered by many providers.
Leverage
But investors should take care: unlike most traditional financial dealing, spread betting is a 'leveraged' product. This means that your initial deposit payment gives you exposure to a comparatively larger portion of an underlying market than if you bought the instrument directly (via a stockbroker for example).
This means that spread betting can result in big gains , but also in big losses that exceed your initial deposit. As it is possible to make significant losses over a short period of time, anyone taking the plunge into spread-betting should do plenty of homework and understand how to limit their risk.
