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Spread betting is a derivative that allows investors to trade on the price movement of thousands of financial markets, which includes indices, shares, currencies etc. Spread bets consider the price movements, irrespective of whether the markets are growing or declining. Profits can easily rise in line when going both long (buy) and short (sell). If you were to go short, then your profits will increase in line despite any fall. If you were to go long on the price, and the fundamental stock prices decrease, only then would you experience some loss.
Such derivatives are used to create an active market where, both sides of the binary wager, even if the outcome was of an event, it may come across prima facie to be biased towards one particular side compared to the other. It can be easy to quickly lose money if a particular trade goes wrong. It is necessary to take some protection as deposit called ‘margin’. Margins can vary in size but are up to 10% of the value of the bet you have made. If you were to supposedly lose on a certain trade that may threaten to exceed the margin, then your provider will ask you for the money which is known as a margin call. If you are unable to come up with the required amount of money owed, then the provider can close your position at its recent value.
There are many advantages of it as it is tax-free, classed as gambling, which means, you do not have to pay tax on any profit that you make. It has small margins as the products involved are leveraged; it means, you do not have to place the entire value of your position in order to trade. You can also short the market as you are only placing a bet for the direction in which the prices of your asset will move. It happens almost instantaneously, you are able to execute around 99% of deals in 0.1 seconds or less. Such markets and trade are not bound by market opening timings as it allows opening and closing the positions whenever you wish even if the underlying markets are closed.
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