Disk 5.4 Spreadbetting Account

The review of spreadbetting accounts is clearly of more interest to British customers. As with the conventional brokerage account, Guy goes through the markets and types of instruments, shares, indices, commodities etc covered by spreadbetting and, most importantly, how the the spreadbetting company makes its margin in the spread between buy and sell orders compared to the commission charges of conventional brokers.

Guaranteed stops

In addition, greater security is available by buying a guaranteed stop in exchange for a slightly wider spread. This avoids the risk inherent in a stock price moving so rapidly that it gaps through your stop without touching it and does not give the spreadbetting company the time to execute your order. The consequence of this is that you can be taken into a trade or kept in a trade way outside your intended trading plan.

This is avoided with a guaranteed stop with the wider margin. In this case the spreadbetting company assumes the risk and will guaranteed to complete your stop at your specified price. They simply take a small insurance policy of a wider margin from everyone in order to pay for the cost they will incur when a stock gaps through for a single trader.

Guy also shows the importance of taking into account all the costs associated with trading including brokerage commission and tax which all tend to reduce the return on investment and ultimate profit whereas the spreadbetting method is remarkably 'overhead free' with no costs, no admin and no tax leading ultimately to a better overall return. It also has the advantage of the trader being able to start small with small bet sizes.

As Flag-Trader is looking for profit opportunities throughout all markets it is the spreadbetting service that covers most markets that comes out with Guy's recommendation as a service provider rather than alternatives that may offer variations of spreads or some other advantage.

Summary

Good, basic comparison between conventional and spreadbetting account with solutions to some of the identified hazards.