It is a simple fact that when trading the financial markets there will be risks whichever trading format you make use of. When share trading, using CFDs or ETFs, you can lose money.

So where can you look if you want an investment option which provides access to thousands of international markets as well as certain tax advantages*?

In the UK, and increasingly across the international community, many think that spread betting offers a realistic solution.

As we have discussed, there are risks when you invest. When speculating you must always remind yourself that the markets can go down as well as up. With spread trading you can lose more than your original stake or investment.

The following risk warning also gives you a couple of other handy pointers, “Spread bets do carry a high level of risk to your capital. Before trading, ensure that spread betting matches your investment objectives. Make sure you familiarize yourself with the risks. Seek independent advice where necessary”.

Small Stakes and Stop Losses

At the same time though, you can put limits on your bets which can help reduce your losses without affecting your potential profits. You can also employ smaller stake sizes such as £1 per point or $1 per point.

To gain a little exposure you could just trade the popular markets such as the Stock Market Indices, ie speculate on whether the FTSE 100, Dax 30, CAC 40, Dow Jones etc will go up or down.

As mentioned, with all of these markets you can trade £1 per point or $1 per point etc. If you speculate on the FTSE 100 to go up, with a £1 per point stake, and it goes up by 60 points then you would make 60 points x £1 per point = £60.

With most spread betting companies you can trade in Sterling, Euros or Dollars. If you want to trade in Dollars then 60 points x $1 per point = $60.

Of course if the market went against you, dropping by say 75 points, then with a £1 stake you would lose 75 points x £1 per point = £75.

That would not be a great start. However, with firms like IG Index you can add a Guaranteed Stop Loss at let’s say, 40 points.

If you were betting on the FTSE 100 it would simply mean that your bet would be closed if the FTSE 100 moved against you by 40 points. Therefore, instead of losing £75, you’d only lose 40 points x £1 per point = £40.

Of course, if you correctly predicted the direction of the market then you would still make a profit of £60 if it moved 60 points or £45 if the FTSE 100 moved 45 points.

Spread Trading Advantages

Risk management is merely one example of the benefits of spread trading.

There are a wide range of markets on offer. You can speculate on thousands of markets from the highly traded FTSE Index and Sterling / Dollar foreign exchange rate, to the less traded Wheat, Dollar / Polish Zloty and Indian Stock Market.

In contrast with more traditional share trading, you can take short positions on a market. Financial spread betting offers you the option of trading in either direction. This means that if your research leads you to think that the price of Gold is going to increase then you can spread bet on it to rise. On the other hand, if you think that the Dax 30 is likely to struggle then you can spread bet on the market to go down.

Given that spread trading does not involve the transfer of assets and is merely a bet it isn’t liable to income tax, stamp duty or capital gains tax*.

In contrast with traditional share trading, you do not pay any broker’s fees or commission based charges.

All this sounds great but what’s the catch? We have already considered the risks with investing. Don’t forget that using smaller stake sizes and applying a Stop Loss can lower your downside.

* According to current UK and Irish tax law. This may change or differ depending on your personal circumstances.