As I write this, I’m nursing a bit of a sore headan empty wallet. In the last four weeks I’ve lost almost £30,000 spread betting for about an hour a day five days a week. So I managed to blow around £1,500 an hour. That’s really quite a chunk of cash. Actually, it’s not quite as bad as it looks. Fortunately, I was betting using a few spread-betting companies’ demo sites. These are simulations of their live betting sites that allow you to practice before you start betting with real money. I realise that I am no financial genius otherwise I would have been rich long ago. However, the fact that I managed to squander so much money so quickly does pose the question – if spread betting seems so easy, why do so many people get completely wiped out extremely quickly?
We’re increasingly seeing advertising for spread betting in investingmoney management publications. In the one I subscribe to, four or five different spread betting companies take full-page colour ads each week, outnumbering any other type of advertising. Spread betting ads are already common in the business sections of many weekend newspaperswill probably soon start to appear in the personal finance sections. Spread betting could appear deceptively attractive to many savers. After all, money in a bank, shares or unit trusts will at best give us about a miserable five per cent a year before tax. Yet a reasonable run on spread betting can easily let you pocket ten per cent a week – five hundred per cent a year – completelygloriously tax-free. So spread betting can let you earn in just one year what it would take a hundred years or more to achieve with most other investments.
Spread betters gamble on price movements of anything from individual shares, currenciescommodities to whole markets like the FTSE, Dax or S&P. It is called spread betting because the company providing the service makes most of their money by putting an additional spread around the price at which something is being bought or sold.
Spread betting appears to have many advantages compared to traditional investing:
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- You don’t have to buy anything – It allows you to bet on price movements without having to buy the underlying assets – shares, commodities or foreign exchange.
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- It’s tax-free – When you buy or sell shares, get paid dividends or receive interest from a bank you will have to pay taxes like stamp duty, capital gainsincome tax. Unless spread betting is your full-time jobonly source of income, there are no taxes to be paid as it’s considered to be gambling.
- You can go long or short – When you spread bet you can gain just as much whether prices rise or fall, providing you guess the direction correctly. With most other investments, you need the price to go up before you make a profit.
