Friday 3 May 2019

Finance Fridays – The Dangers of Spread Betting

We were looking to see if it is better to buy, rent or borrow for last week's Finance Fridays. This week we are talking about spread betting. With the domestic football season ending this month you may have noticed how many clubs are sponsored by betting companies. This is due to the rise not just in traditional betting but other forms such as spread betting. Most betting is done on sporting events but spread betting has become popular by also trying to predict the outcome of financial events.

What is spread betting? - It's form of betting where you win or lose money based on the margin of the value rising or falling. For example, if the share price of a company is 250p you can make a spread bet if the share price goes up or down. If you predict the right way you win a lot of money. However, if you get it wrong you can end up owning a substantial amount of money.

Why is it popular? - As it is a form of gambling any proceeds you receive from wins are free from tax and there is no stamp duty to pay. This is because you don't actually buy or sell anything. When it comes to share or the currency markets as you don't physically buy you also don't need to put down a large outlay of money in order to benefit from the rises in prices.

There are lots of different ways you can do spread betting. You can stick to something you are interested in such as sports or diversify into global financial markets. As a form of investment it can provide very good short-term profits. In a fast moving world and with other investments taking a time to come to fruition then spread betting provides a quick fix.

Why is it dangerous? - Betting companies promote spread betting to inexperienced people. Basically they are amateur gamblers sitting at home who have seen the adverts. In traditional gambling when you place a bet and if you lose your losses are limited to your stake. In spread betting the size of the loss can not be determined beforehand. For example, you bet that a team would win 2-0 but they lose 7-0. Every goal could be worth £100 but as you were nine goals out you would actually be liable for £900.

When betting on share and currency prices the odds are stacked against the gambler. In spread betting a share that could be trading at 100p may need to be bought at 101p. If you have bet on it rising then if it does go from 100p to 101p then you win nothing. However if it goes down at all then you will lose.

In the professional financial markets large companies can usually cover trading losses. This is because the traders know the markets well and have previously made large profits. Losses usually happen when unexpected events disrupt the markets such as natural disasters or terrorist attacks.

To use a sporting cliché at the end of the day it is a form of gambling. If you win then you want to keep going as you think you can keep winning. If you lose you feel you have to try and win back your losses.

Would you try spread betting? Have you made any profits or losses from it

If you want to join in with this week's Finance Fridays then add your link to the linky below. Any post concerning financial matters is allowed. Full details here. It doesn't have to be published today as you have until 23.55 on Tuesday 7th May 2019 to join in.

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1 comment:

  1. I've not heard of spread betting, it sounds very risky to me. I do matched betting which is less riskier although not totally risk free. I try to stick to the risk free offers though and it sees me making a little money that grows in my pot.


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