Spread Betting - Financial Spread Betting
Financial spread betting involves speculating on the rise and fall of market prices. For instance, when you take part in spread betting, you can choose a particular company stock on which to bet – will the value of the stock rise or fall in your specified time? Spread betting requires a person to be pretty open to the risk factor, as this is a fast-paced, highly speculative way to invest, you are placing your money at a far greater risk of loss than on other investment tools. Please make sure that you read the terms and conditions of any company you wish to open an account with.
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Financial spread betting is one of the simplest way of trading on a financial market. It allows the investor to speculate on price movement of shares, indices, commodities and exchange rates. Like CFDs, spread betting is a derivatives instrument and the spread better is not required to buy the underlying product. He or she can profit from a falling market as well as a rising one. Sport spread betting is offered by numerous companies in Australia but it is not classed as financial instrument – it works similarly but is purely for betting on sports.
How does Spread Betting function?
Predictions on the markets and share prices are made with a specialist financial broker – they usually offer CFDs as well as spread betting. The broker will offer the investor a spread, based on the current selling quote and future buying price that it determines. Next, the investor takes this price and to speculates on the direction of his chosen index value or share price. He can decide to 'bet' that the price will rise – in which case he makes a bet from the offer (or selling price). If he decides to 'bet' that the price will go down – in which case he makes a bet from the bid (or buying price).
Are there differences between CFDs and Spread Betting?
The two types of investment trade sound very similar and indeed they are. But unlike CFDs traders, the spread better does not need to pay commission – that's the main difference. Financial spread betting brokers generally 'swallow' commission. They can do this because they offer a slightly wider spread than the actual market price. CFDs are free of Capital Gains Tax in Australia, while taxation on spread betting is more complicated, see below.
What are the tax laws affecting spread betting?
In Australia, the rules on financial spread betting with regards to tax are a little cagey. IG Index recommends that investors "...seek their own tax advice". According to some reports, the Australian Taxation Office is still reviewing the tax status of spread betting. However there are international companies listed in Britain that can handle Australian customers. They offer the same high-tech platforms which they offer their UK customers – just take a look at the ones listed on Which Way To Pay Australia. To find out exactly how you are affected with regards to taxation on your trades, please speak to the broker directly.
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30 April 2010
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Financial spread betting offers people a fast and straightforward way to trade on a massive range of global markets. Often likened to online gaming, it is in fact officially classed as a financial derivative product.