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87 things to do with a spread bet

Created:
27 February 2004

Over the past few months, the monthly Masterclass supplement has taken a critical look at two of the most popular alternatives to owning shares directly, namely: covered warrants and contracts for difference. This month, we take a fresh look at perhaps the most popular financial derivative for private investors: spread betting.

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If you have read this far, you are probably not one of those people who dismiss the whole area of financial spread betting as spivvy or reckless. Provided you have taken a few basic precautions, there is no reason to turn your nose up at spread betting - and some pretty compelling reasons to get involved (anyone out there fancy paying zero stamp duty and zero capital gains tax?).

The key precautions are threefold.

First, try it out for a couple of weeks using a trading simulator where all your gains or losses will be virtual.

Second, never risk more than you can afford to lose. This means resisting the temptation to take on heavily-geared positions, even when it is easy to do so.

And third, be aware that financial spread betting can be as addictive as gambling. Be clear from the outset what your investment goals are and how you will measure success or failure. Otherwise, you may find you have crossed the (invisible) line between cold, calculating investment and thrill-seeking.

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