Trading Individual Shares

An Introduction to Trading Shares

Spread betting using the shares of individual companies as underlying assets is a firm favorite with many traders.

You have a wide selection of firms to choose from which is both extensive and varied. For example, all the companies listed on famous indices, such as the FTSE100, Dow Jones Industrial Average, S&P 500 and NASDAQ are all available. In addition, you can activate spread bets structured on individual shares in an identical way to those based on indices. Although the products are very different, an identical procedure is utilized using leverage facilities.

Shares Spread Betting

Spread Betting on Shares at FinancialSpreads.com

Advantages of Spread Betting on Shares

You will also benefit from a number of impressive features when trading individual stocks. For example, envisage that the shares of Facebook presently stand at £40. Most traders who purchase shares directly via the Stock Market usually do so as a long-term investment of about 5 years with the intent of realizing a profit over that time period. Such a process can involve a significant sum of money. For example, if you were to buy 1,000 shares in Facebook you would need to find £40,000 in order to complete this transaction. You would then not have access to this capital until you sold your stock holding.

Now, if the Facebook’s shares appreciated by 25% to $50, you would indeed secure a sizeable profit of $10,000 after selling your holding at that price. However, you would then have to pay tax on your total profit as it would be classified as a form of income. In addition, you may have broker fees to service as well. As such, your profit would be substantially diluted.

In contrast, if you opened a spread bet using the shares of Facebook as its underlying asset, you could circumvent all these problems. For instance, your capital investment does not need to be anywhere near as large because you will benefit from the usage of leverage. Essentially, you can wager the minimum deposit stipulated by your spread betting broker, which can be as low as £20. In addition, you can earn considerable profits which are calculated using the exact distance that price moves in your chosen direction. At expiration, you would be entitled to retain your entire profit as spread betting is totally exempt from taxation of any type. You will also not have to contend any broker’s fees as well.

As you will be risking a much smaller deposit when spread betting, you can close your position at any time as it will be highly fluid. In addition, you could increase your potential profit by gearing up your wagered amount at any time after your bet has been initiated. In fact, by doing so you could readily match the profit attainable by more traditional methods without risking anywhere near as much for the equivalent amount of work.

Another great advantage of spread betting is that you can make profits during rising and falling markets. This feature is in direct contrast to other investment mechanisms when you will only gain if the shares of a company appreciate. In fact, you will also suffer losses should they fall

Coming to Terms with Trading Reality

As you can conclude from the above, trading individual shares using spread betting offers exciting investment opportunities. However, you must take care, especially if you are a novice, and learn to base your trading strategy and approach on reality and not just fantasy. For example, enticing advertising campaigns and publicity attract many beginners to spread betting by claiming that it is easy to trade and that they will be able to attain substantial profits very quickly. However, reality and trading statistics do not present the same picture.

For example, a recent survey demonstrated that beginners adopt trading practices that are characterized by the following features:

1. As they think that they should be able to quickly attain a successful spread betting strategy or tool, they do not consider that acquiring a good spread betting education is that important.

2. They do not understand the significance of minimizing their risk per spread bet.

3. As they equate activating many bets daily to profitable trading, they normally opt to open many poor quality bets instead of focusing on quality ones.

4. They have the impression that they will achieve serious spread betting profits very quickly.

5. They do not persevere with any spread betting strategy or tool for very long and prefer to jump quickly to one new concept onto the next.

6. They expert that at least 80% of their spread bets will be winners.

You can conclude after studying the above list that spread betting novices require immediate access to spread betting tools and strategies that will generate for them fast profits. If you have even just attained even a minimum appreciation of the realities of spread betting then you should be astonished how anyone can possess such naïve ideas.

Instead, a more professional approach is outlined by the following list which presents a spread betting trading strategy that is capable of generating profits consistently.  You will also realize just how deluded most spread betting beginners are after studying it.

1. Your trading strategy will target profits of 20 points per spread bet with maximum wins of about 100 points.

2. You will aim to obtain a monthly profit of 300 points and an annual one of about 3000 points.

3. You will constantly re-evaluate the performance of your spread betting trading strategy by determining its key parameters, such as its win-to-loss ratio, etc. In addition, you will make improvements if you deem that they are necessary.

4. You will try to open just one quality trade daily possessing a good profit potential with minimum risks.

5. You will try to trade a maximum of about 30 spread bets per month.

6. You will expect that the average lifetime of your spread bets will be between two to six days.

 

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