There’s no doubt that the stock market has proved to be one of the best investment opportunities in the world. There are different strategies used by traders to make the most out of the stock market and one of them is known as spread betting.
But despite the popularity and potential that spread betting has shown for the past few years, there are traders who are still critical of this trading strategy.
Besides, there are a lot of myths being peddled by individuals who don’t understand spread betting or those who haven’t even tried it to begin with.
The good news is that most of the myths remain just that – myths. They don’t have any basis or justification whatsoever. There are many credible institutions and renowned investors who invest a lot in spread betting positions.
So here is spread betting explained. According to Capital.com, “Spread betting is a tax-free derivative product that enables traders and investors to benefit from price fluctuations of underlying financial assets, including stocks, commodities, indices, and currency pairs.
A flexible form of trading, spread betting allows traders to speculate on bullish and bearish price movements (when the market goes up or goes down), taking long and short positions. It provides traders with double the amount of trading opportunities than the more traditional form of buy-and-hold.”
Spread betting is a common derivative product used by traders to speculate financial markets.
Below are the top five myths about spread betting:
1. Spread betting is too complex for average traders
This is one of the most common myths told about spread betting. This can be attributed to the long list of spreads that traders are supposed to examine before making certain decisions. While doing so may appear complicated for beginners, spread betting is relatively easier compared to other types of investing. It takes a very short time for a completely new person to understand how spread betting works.
One can get started with spread betting with just a spread betting account and the required minimum deposit. The first thing you need to do is select a broker and deposit your capital. After that, you can access the markets almost instantly as long as your ID and credit card information have been verified.
2. Getting started with spread betting requires a lot of money
This is not true because most traders start by putting in very small amounts. It is possible to start a spread betting account with as little as $100. It is true that the more capital you invest, the higher the returns. However, one is not limited to being mandated to invest large sums of money to access the markets.
3. Just like any other type of gambling, the odds are always in favor of the house
Technically, spread betting is gambling but it is more focused on trading rather than betting. Despite the fact that brokers usually generate some form of commission known as spreads, it is not true that the odds are always against the trader as in the case with gambling. If anything, the odds in the spreads play a very minor role.
4. Brokers mislead their clients by giving them false data
This is a narrative that is often propagated by traders who make constant losses. Brokers are regulated and it is very unlikely that they can use unconventional tactics to cheat clients. In fact, such tactics can be counterproductive because brokers will lose clients.
5. Spread betting is very risky
Just like any other investment opportunity, spread betting can only be dangerous if you don’t understand what you are doing.
Also see: Top 7 Insurance Myths
In general, spread betting is a great investment opportunity. All you need to do is understand how it works and make the most out of it.