The stock market offers you a variety of important trading options. That you can do normal day trading in shares or currency in the physical space or if you are more adventurous and wish to make optimum utilization of limited monetary resources, you are able to go for trading in derivative instruments such as financial spread betting or margined trading, futures trading or cfd trading. The derivative instruments fall in the arena of speculative activity and are therefore fraught with greater risk than cash market trading.
Let us compare financial spread betting with futures. Basically both are leveraged or geared financial instruments in which you just pay margin money in order to trade inside a much higher volume of shares. This margin money is typically between 15-20% from the actual value of the quantity of shares you are trading in and for that reason represents an opportunity for you to make quick gains if the market movement maintain consonance with the position you’ll have taken. Both don’t attract any kind of stamp duty which explains the reason why they are very popular. You’re able to keep the profit you make in total and that is a great advantage. However, when you make losses, those losses are for good because you cannot offset it against any profits in future.
Futures trading contracts come with an expiry period and you’ve got the liberty of holding your position till that date and permit it to expire or close the contract before the date. In any case, there is no physical exchange of shares. The futures contract price also is at a premium compared to the underlying which is referred to as the funding charge.
spread betting also offers a expiration period and the price already includes a premium that is integrated into the price. You can close the position like you would do in futures or ensure that it stays till expiration and let it expire on its own.
Financial spread betting dealings are between your trader and the market maker unlike futures where the contracts are dealt with by the exchange. The regulation in margined trading is much lesser than in futures trading. Both derivative products don’t involve any physical exchange of assets though their movements provide the movement of the underlying.
To sum up, it is best to do financial spread betting or deal in futures trading solely after recognizing their nuances in more extensive detail.
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