Within the financial sector, ‘alternative’ is fairly open to interpretation and more or less covers every investment opportunity out with standard cash, stocks and shares. This is where spread betting fits in and why it will likely be able to capitalise on the mounting interest in such prospects.
As with any emerging alternative method of investing, it has both its ups and its downs, so first and foremost it is important to educate yourself on the basics so that you can make informed and wise decisions when it comes to staking your money.
A very brief snapshot would highlight the following as reasons to pique your intrigue:
- You’re not committed to the actual purchase of a physical share. Instead, you stake your investment based on whether you think the value of a product will rise or fall.
- This means you have an increased chance of making a return, as you are not limited to only ‘successful’ products; you can place your money on the likelihood of something losing its value and still earn money.
- Markets are available 24 hours a day.
- Profit/loss is easy to determine as you simply win/lose multiples of your stake for every point the product rises or falls. For example, if you stake £2 on something rising and it does so by 10 points, you will receive £20. Conversely, if it fell by 10 points, you would lose £20.
- Perhaps most temptingly of all, profits made via spread betting are tax free.
As is always the case, we must balance said highs with the opposing lows. As such, disadvantages involved in spread betting are not restricted to but can include:
- Because you simply win or lose multiples of your investment, it is very much a possibility to lose more than the value of your stake.
- It’s only possible to operate in the short term. While this may appeal to some, it limits those who prefer intricate planning and detailed analysis of the risks based on forecasts, as value ebbs and flows constantly.
- In some cases, there are expensive holding costs to pay if you maintain your position for an extended period.
- Markets are still incredibly volatile.
Spread betting has undoubtedly seen a surge in popularity of late and evidently for good reason. A recent alternative investment summit reported for example that 100% of respondents answered yes when asked if they believe financial advisors should pay more attention to the growth in the market of alternative finance opportunities (which saw a 91% increase in 2013) when working with their clients. It seems now could well be the time to get involved in this blossoming trend.