Let’s face it, we could all do with earning a little extra cash. With living costs and inflation both rising above pay increases, it is getting harder and harder to make ends meet. Cash ISAs and savings accounts used to provide a good way to save money but, with these rates declining, your money is currently stagnating. That is why thousands of people are now turning to alternate investments such as spread betting, as although it is high risk, it is high reward as well. So, if you fancy earning extra money on the side, spread betting could be perfect for you.
No matter what pretence they operate under, spread betting firms are essentially bookies. The potential winnings or losses of this bet are determined by your accuracy. So, let’s look at an example using sport.
Looking at an Example
Shares are very popular with people who spread bet and they provide a good example. So, let’s assume that we are going to place a bet on the price of shares in Apple.
Your spread betting firm will give you a quote which may be $1.20- $1.30 per share. From here, you have a directional decision to make.
The quote offered is essentially a share price as it would be on any commodity, and you’re deciding whether it will go up or down. If you think that Apple’s stock price will increase beyond $1.30, then you place a stake for every ‘pip’ that it moves. If the stock rises to $1.40 then it has moved 10 ‘pips’ and you’ll receive 10 times your stake. In addition, in the UK this is all free of tax, just as it would be if you went to visit an actual bookie.
So, by using a spread betting firm, we can make quick tax-free profits. There are, however, also significant risks, as if the score goes the other way, the potential losses are almost limitless.
What if it Turns Against?
Looking at the same scenario again, if Apple’s shares had dropped to $1.00 you would have lost 30 times your stake and, in this example, the losses would outweigh the profit. This is true of most spread betting bets on commodities, forex and sport. Due to the fact that there’s no lower end, losses are virtually limitless alongside profits.
Learn Before you Bet
If you think spread betting is right for you, then you should shop around before you select your chosen broker. You will need a broker who offers tights spreads to maximise your potential profits. As well as this, check what services your broker offers and decide if you would like to bet on commodities, forex or shares. There’s an option for everyone, but make sure it reflects your areas of expertise.
If you invest wisely then there’s a profit to be made but, as has been stated, losses can be large too so make sure you’re fully educated before you bet.