One of the most important decisions a new trader has to make is choosing a reputable spread betting broker that is both reliable and cheap, in terms of the spreads that are charged when trades are placed. These spread charges seem nominal or trivial at first, but when hundreds or thousands of trades are placed every year, these small charges can add up to substantial amounts that can have negative effects on your trading account’s P & L (profit and loss). Excessive spread charges can erase many of the gains made by successful trades, and this is very important for new traders because those successful early trades are even harder to come by.
Choosing a spread betting broker
Spread prices comparison
In this article, we will outline some tips for choosing the best spread betting broker to meet your trading style. The most obvious issue is clearly the up-front costs charge when buying or selling the asset. Brokers don’t charge commissions when trades are placed but these Spread Betting companies make money because the bid price (the price to purchase an asset) and the ask price (the price to sell that asset) are not the same. The difference between these two prices is called the “spread” and this is essentially the fee paid to the broker for providing access to the market. Traders can compare these spread prices and choose the broker that offers the tightest spreads (the lowest cost per trade).
Margin trade requirements
Next we will look at margin requirements, which can vary greatly depending on the broker and on the type of asset being traded. A margin trade only requires a small percentage of the total trade size to be committed at the initial outlay. Generally, this margin requirement is somewhere between 3 and 10 percent and is mostly dependent on the total market liquidity of the underlying asset.
The next factor to consider is the variety of markets for with your broker can provide access. This added flexibility can prove extremely valuable because it allows traders to take advantage of market conditions that might not be to all market participants. If for example, there is a major move happening in the price of Gold, you will only have the opportunity to capitalize on the event if your broker offers Gold trading. The same holds true for all other commodities, stocks and currencies (forex pairs). Essentially, this should be looked at as though a wider variety of markets will offer a greater number of events to use as a trading basis.
Brokers interest charges
As far as costs involved, interest charges should be viewed as an important trade cost, especially for long term traders. Since financial spread betting is typically traded on margin, and since these trades require you to literally borrow capital from your broker, interest charges can accumulate quickly and cut into your longer term profits if not managed properly. Interest, however, can actually work in your favor (and create small gains) depending on the type of asset that is being traded. Because of this, you will want to closely review your brokers interest policy and choose the one that is most well-suited to your individual needs.
Finally, as with any purchased product, broker reliability and access to customer service is something that should always be considered. When a problem occurs with a trade, and for example, you need to exit a position quickly, you need to make sure that your broker’s trading platform will allow you to do this. If, for some reason, the trading platform fails, you will need to be able to talk to someone at all times so ensure that all of your trades are properly managed.