Traders drawn to spread betting
Sponsored Stop loss orders and starting small reduces the novices exposure to risk
The collapse of the financial markets left countless ordinary investors clinging to the ruins of their pensions, share portfolios and property investments. As a result, financial spread betting has seen a rush of new traders – hungry to learn about the markets and take control of their own finances.
There was a time when private wealth management was the exclusive preserve of those who could afford stockbrokers and well-paid advisors. But that didn’t stop the value of their investments going through the floor. So the logical next question became: “Shouldn’t I learn to do more for myself?”
“The extraordinary thing is that, while virtually every other type of investment has been devastated, the Irish spread betting market hasn’t really been affected by the recession – in fact, its overall value hasn’t shrunk at all since 2007,” says Declan Bourke, managing director of IG Index Ireland.
“One reason seems to be that, apart from the fact that there’s no capital gains tax or stamp duty, which obviously makes it attractive, investors in Ireland are far more sophisticated nowadays – and many of them are using it as a flexible hedging tool.
“As a result, you’ll find farmers looking to fix expenditure on grain, or perhaps SMEs aiming to mitigate currency exposure outside the euro zone”, says Bourke. “That’s why our free client workshops and seminars regularly reach capacity. There’s genuine interest in learning.”
Betting on volatility
One of the main reasons seasoned traders like financial spread betting is that they can make money whether the markets are going up or down. As a trader, you’re not buying the share, you’re simply betting on its movement – so as long as there’s activity in the market, there’s the potential to make a killing. For most traders, the more volatility the better.
“Going long” on a share means betting that its price will rise, while “going short” means betting that it will fall. It was the wave of traders “shorting” banks when they smelt panic during the financial crisis that led to a ban on “naked short selling” – shorting stock without owning the underlying shares – in Germany in 2011 and a 15-day ban in France, Belgium, Italy and Spain the following year.
But whatever trade you’re making, it’s important to keep an eye on market trends – hence the old saying in the financial world: “The trend is your friend.”
Apart from the fact that it’s tax free, the other major attraction of financial spread betting in that you’re trading on margins; you’re borrowing money from your spread betting provider to make your trades.
“For example, for an exposure of €15,000 to bet on a particular stock, you only have to put down three per cent of the total and that gives you the full exposure”, says Brenda Kelly, senior markets strategist with IG Index in London. “You don’t necessarily have to have the capital.”