CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
Spread betting offers leveraged trading on financial markets such as forex, commodities, equities, and indices. It is very similar to CFDs trading and the differences are mainly technical. A strength of spread betting over CFDs trading is that spread betting gains are not subject to capital gains tax or stamp duty, though losses cannot be offset against gains for tax purposes as with CFDs trading.
The term spread betting comes from the ‘spread’ between the buying and selling price of a financial instrument. This is basically the same as the buy and sell prices for currencies at a foreign exchange bureau and is how the broker makes their income.
When a spread betting trader thinks the price of a financial instrument, for example, the FTSE 100 index, will rise, they will place a ‘buy’ bet. If they think it will fall, they will place a ‘sell’ bet. These are also often respectively referred to as ‘going long’ or ‘going short’. The spread better then gets or loses money for every ‘point’ the price of the financial instrument rises or falls, depending upon whether it moves in or against the direction predicted. What a ‘point’ movement is varies between instruments. It could be a penny or cent change in price or it could be a fraction of a percent of an index.
The spread better also chooses the stake they wish to ‘bet’ per point movement. If that stake is, for example, £10, and the instrument moves 10 points in the predicted direction before the position is closed, the trader would get £100. If it were to move 5 points in the opposite direction to that predicted the trader would lose £50.
While most brokers offer demo accounts where newcomers can practice trading without risking real money until they feel confident enough to do so, this approach misses out on the key psychological influence of having real money at stake. A significant element of trading is maintaining the right psychology and being able to stick to a strategy under potentially trying market conditions. Trading a demo account without risking real money, while useful, lacks the unique psychological influence of having actual money at stake.
This is where the micro stakes offered by some brokers are perfect. Being able to place a spread bet at 50p per point, with some brokers offering stakes as low as 10p per point, means beginners can gain experience trading real money without it costing them a great deal when they make mistakes. 50p per point trading means modest initial funding to a trading account can be spread across enough trades to spread risk thinly, build experience and give the trader more of a chance to learn how to improve their skills.
Gaining the knowledge, psychological approach and experience to trade financial markets takes time and effort. Getting a handle on technical and fundamental analysis presents a large challenge for beginner traders.
However, while learning how to trade is certainly not easy, it is also something realistically achievable for most people. The reason why many beginner traders fail is that they do not take the right approach to risk management. They expose too much capital to individual trading positions and quickly burn through their account’s balance.
Traders need to understand that it is inevitable that they will be exposed to losing positions and this requires a strong approach to risk management and diversification of exposure.
It is easier than ever before to begin trading, and this means that more traders are signing up for trading accounts with smaller deposits. This is why the 50p per point, and even lower stakes, are useful for ensuring that initial deposits can go further while a trader learns the ropes.
Some of the top regulated brokers who offer a 50p per point option include City Index, who offer spreads from 0.1% and margins from 4%; and CMC Markets, who offer 50p per point on indices, commodities and FX, and as low as 10p per point on some US shares.