Many people who are new to financial betting ask why people bet on the financial markets rather than actually buy stocks and shares and other commodities.
There are many reasons for this, such as it can be cheaper, there are fewer charges, and also, in the right circumstances, it can be less risky. However, the best reason, especially for those starting on a limited budget, is that you can benefit from incredible leverage. This is the ability to assume a large position even if you have limited starting capital.
Look at this example: Assume you are a ‘traditional’ investor, buying and selling stocks and shares. You have been following the news (as all good investors and financial traders should). The explosion of mobile telephones with e-mail capabilities is the big talking point at the moment, and you feel that BT are well placed. Having checked their share price you feel that it will rise quite substantially over the next few months.
Supposing you are an investor with a mixed portfolio and you are prepared to take a long-term view. You have £2,500 available and buy BT shares at £9.25 – 270 shares. Within a couple of months your hunches were correct and their share price has risen to £15.20 so you decide to cash in. After taking into account dealer expenses, market spread etc. your profit is £1,300.00.
Let’s look at a more profitable way in which you could have cashed in on your knowledge and skill. Rather than buy BT shares, you bet on their future value. Your financial bookmaker quotes a price for BT shares of 955-965 expiring in three months. You buy £30 per point at 965 (exactly how this works is explained elsewhere).
Again, the value of the shares rise to £15.20. The spread price for BT shares is now at 1540-1550. Again you decide to cash in selling at 1540 and your profit will be as follows:
Closed at 1540.00
Bought at 965.00
Difference 575.00
x stake £ 30.00
Your profit is £17,250.00 !
This example clearly shows the power that leverage can offer as opposed to the traditional method of buying and selling shares. Another advantage is that with a spread bet you are not charged commissions, stamp duty, dealer costs or hit with capital gains tax. This is why many investors are now using spread betting as a way of making serious money.
Of course, there is nothing to stop you using some of your profits to actually invest in stocks and shares by buying them in the traditional way, and possibly making even more money! And, an increasing number of investors are now placing bets that the values of stocks and shares they own will actually fall, thus protecting some of their investment if this occurs. This is known as ‘hedging’.
These methods have been used by super-rich investors and financial corporations for years. Now even the smallest speculator can cash in on them too!