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SPREAD BETTING RISKS
Please find information on spread betting risks in the guide below.
Are all Spread Betters at Risk?
Yes; no matter how experienced a trader you are, your money will be at risk if you partake in financial spread betting.
In fact, it is often recommended that people who are unfamiliar with the world of derivatives and speculative trading should steer clear of spread betting until they are more familiar with how it functions. If you are not sure as to your suitability for financial spread betting then it might worth chatting with an independent financial advisor.
What Exactly are the Risks?
Financial spread betting might be pretty easy and fun to do but this makes the activity even more open to risk. By investing capital in the spread betting market, you risk the fact that you could lose all of it – and may even be required to pay extra funds on top to cover a loss.
- Lack of Understanding or Rationality
Before opening a spread betting account, it is crucial to carry out research and training in order to fully understand the nature of the market. Spread betting is a very fast-paced way to trade so requires a lot of care and attention. Reckless or emotional decisions can inevitably lead to loss.
Often likened to gambling, financial spread bettering also carries the risk of addiction or overtrading – as the better gets more involved, he or she might make a series of losses. In order to try and regain control, they place more and more bets leading to addiction or obsession.
How Much could I Lose?
By opening a financial spread betting position, you are only required to pay a small amount of the full underlying product price.
You can bet with as little as $5 a point – meaning that if your bet wins, you win $5 for every point (a cent). If you lose, the opposite happens. This means loss can be absolute, and because you pay a margin to your broker, you may lose that too.
In order to maintain a bet, you might be required to pay more to the broker.
What Can I do to Manage Risks?
As with other forms of derivatives trading, there are a few things you can do to manage your risk. These are all worthwhile measures, but none of them provide a guarantee that your money is safe.
- Training and Research
Before you open a spread betting account, carry out an adequate amount of research and training. This is especially important if you have little or no experience of financial trading, but even people who have taken part in other trading types would be well advised to take some training. You can do this online, in many cases for free.
Advisory services can be ordered alongside your platform – they provide insights, expert trade tips and advice. This costs extra and not all brokers offer this option.
- Order a Stop Loss
A stop loss is effectively a limit on your account. It will close your position at a set point (arranged in advance) in case your position descends into a loss. This is especially important if you are intending to spend some time away from your account (such as a vacation).
- See an Independent Financial Advisor
Right before you decide to start any investment plan or trade activity, it is highly recommended that you seek independent financial advice. An expert advisor can go over your personal situation and discuss with you whether this type of trading is suitable – they might suggest another strategy or plan.
Which Way To Pay Australia is an independent online comparison website. Please note that while part of the site content centers on the review and comparison of financial products, we do not at any time encourage or recommended site visitors to begin financial spread betting trading or to trade on any index, commodity, currency, stock or share. Please make sure that you are fully aware of the product before you begin any transactions with financial spread betting.
Which Way To Pay Australia takes reasonable measures to ensure that data on the website is accurate. However, we are not aware of your personal investment goals or needs. The website content is designed for information and interest only.
We would recommend that if you are unclear about your suitability for financial spread betting that you seek independent financial advice.
Which Way To Pay Australia has outlined some of the risks involved in financial spread betting. If you are considering a broker or platform, make sure that you gain a full risk document from the company with which you intend to trade. There are many positive aspects to this type of trading, but it is wise to realise what the risks are when dealing with a financial product or tool which offers such a fast-paced, challenging and potentially rewarding investment. Once you are fully prepared, it is up to you alone to decide how to use financial spread betting.
Please Note: www.whichwaytopay.com.au is not authorised to give advice under the ASIC (Australian Securities & Investments Commission).
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