Now that trading has moved away from the trading floors of major exchanges to the internet, there are a growing number of companies that provide this service, and choosing between them can be daunting.
You should only use established companies which are registered with the Financial Services Authority, and you should investigate whether complaints have been made against a company. Online reviews and comparison tables are commonplace, and some sources are highly respected, such as Independentinvestor.co.uk and Whichspreads.
Trading platforms may be online or could require the downloading of software, and you must decide which suits you. A platform should be easy to use. Any platform should be stable, as nothing is more frustrating than receiving an error message of “Page Did Not Load.” This could cause you to lose money if you are unable to make a trade.
Cost is a major consideration, but weaker providers generally undercut competitors, and a cheaper company could easily be lacking in other respects.
The size of spread offered is of critical importance, with a tighter spread being better for traders. This is because you are betting that a position will be outside of a spread, so the more numbers there are inside a spread, the more chance there is that the spread betting company will take your money. Spreads offered by one spread betting provider can vary between products or according to market conditions or the time of day, and your choice of company should take account of this. The tightest spreads of 0.8 to 2 are offered by SpreadCo. Some spread betting firms allow you to trade outside of market hours, but with a wider spread. The tightest of spreads might feature inferior execution.
Spread betting is highly margined. You need only deposit a small proportion of your exposure. Margins can be anything from one to 15 percent. Margins differ between products. You may desire maximum leverage; however you might be able to live with a larger margin if the spreads are then tighter. Leverage does, of course, carry great risk. If you exceed your margin, there will be a margin call, requiring the payment of money, and the amount of time allowed differs by company.
When you enter the world of spread betting, you will be presented with a choice of special offers for opening an account with a provider. Offers could cover your losses for a set period of time or give you a cash bonus when you trade. Some companies, such as Saxo Bank, do not provide offers. Sometimes, special offers include a minimum bet requirement as companies do not wish customers to make one or two bets and then cease to use the account. Beginners are likely to prefer to avoid this stipulation as they are likely to lose more than the value of the offer.
Stop loss orders are a very worthwhile move, with some guides to spread betting saying they should be mandatory. If more use had been made of stop loss orders, fewer traders would have been devastated by the stock market crash of 2008 when some accounts were wiped out.
Not every company guarantees stop losses to prevent losses from gaps in the market, with ETX Capital being one example. Sometimes there is a fee, as with City Index, or a wider spread, as with IG Index. Guaranteed stops with Gekko Markets are free. Minimum stop distances also differ between companies. The markets where guaranteed stops can be used can be limited, often to highly liquid markets such as blue chip companies, currencies, commodities and indices. Similarly, all companies do not offer trailing stops which adjust as an indicator rises. If you wish to use guaranteed or trailing stop loss orders, you must check that the company provides them. This information can be found in the small print of contracts.
One of the most significant advantages of spread betting over more established forms of investment is the number of markets available. All companies deal with British stocks, but some markets are more exotic, for instance house prices, AIM-listed companies and certain commodities. No spread betting company handles all markets. The fastest way to find out what is offered is to open multiple accounts. The more common markets offer better prices as there is more competition within them, so price should be a consideration if you have something more exotic in mind.
Customer support should be helpful and prompt. Live chat support can be an added benefit.
Educational materials are more important to novice traders. Some companies have won awards for theirs, but some are weaker in this area.
You may require the option of mobile trading. SpreadCo is the only major spread betting company to not offer it. If you wish to use news, charts and graphs but they are not provided by the company, you will have to pay for the service.
Some more considerations are rather simpler. Trading hours may be important. You may wish to have credit facilities. A spread betting company should be innovative. If you intend to scalp, the company you use should allow it, as Alpari does. You should ask companies how they hedge their positions to ascertain how they view you as a client. Some companies do not support every conceivable deposit method. Speed of withdrawal can vary. If you require a particular calculation or technical indicator, you should ensure that the company provides it.
While choosing a spread betting company is thoroughly intimidating, as can be seen, there are many considerations which can guide your choice. Using a demonstration account will be very informative.
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Timothy Chilman ekes out an existence writing internet content. He has written much of spread trading, and is a fount of financial spread betting.