Selecting the right Spread Betting Company for you
There are many spread betting companies in the market place these days and as a spread better we really are spoilt for choice. Choosing the right company for you is something that only you can decide on. It will probably be a case of trial and error and trying out the spread betting companies to see if their platform , spreads, margin requirements, customer service all meet your expectations.
It would seem that there are more and more companies coming to market all the time, but when you are just getting started I would suggest using one of the more established ones.
There are many things to consider when choosing the right company. You might think that the tightest spreads means that company is the best but, if the platform is too hard to use or the website is down all the time then paying a little extra on the spread is worth it for the better service and easier platform.
Below I have listed my top 5 things to consider when choosing a spread betting company.
- Easy to use platform
- Good service
- Tight Spreads
- Good education material
- Fractional bets
Fractional bets can be essential when just starting out in the spread betting world. If I’d have known there were companies that offered fractional bets when I first started I may be further along than I am. That said, you need to be careful you don’t overtrade. Just because a potential trade presents itself, if it doesn’t meet all your entry criteria then don’t trade. Overtrading and boredom trading are all easy ways to lose money.
Some companies offer demo accounts. I personally don’t like to trade with a demo account. Before I started trading live I used a demo account. The thing was I treaded it too much like a game and did not take it seriously enough. Trading is a serious business and if you treat it like a game then you are just gambling. If you think you can be disciplined enough to take your trading in a demo account seriously then definitely do it before you start with real money. If you lose £10,000 in a demo account then it doesn’t matter. If you lose £10,000 in real money I’m sure it will matter to you a lot.
Although I’ve given my top 5 there are many other things to consider when choosing a spread betting firm like:
Range of instruments
If they only offer Indices and FOREX then this may not be enough for you.
If the margin requirements are too high then you may not be able to trade all the instruments you would like too.
This is not that important a factor but hey we all like to feel like we are getting something for nothing. Some introductory offers are better than others. You need to make sure that you read all the terms and conditions for the offer carefully before signing up. Most stipulate that you open an account with £XXX and make some amount of opening trades to qualify. Some fund your account with money others only cover losses you make within the first so many days.
For the latest introductory offers check out my spread betting offers page.
Overnight financing charges
This is an important consideration. If they are charging a ridiculous interest rate for the overnight financing then this could start to affect your trading funds.
There are many things to consider when choosing the right firm. You need to choose carefully and make sure you do what is best for you.
How do Spread Betting Firms Make Money?
I think when you are new to spread betting it’s easy to think that the spread betting company wants you to lose because that’s how they make their money. Well this is not the case. The majority of companies make there money in several ways.
Firstly there’s the spread. The difference between the bid and the ask price is called the spread. If you buy shares on the open market they too have a bid and an ask price. Spread betting companies have slightly wider spreads than the spread on the underlying market and this is one way that they make their money. Let’s look at a quick example.
BP is trading on the open market at 398-400. Therefore the spread is 2 points. You spread betting firm is quoting BP at 375.5-400.5 therefore the spread is 3 points. Therefore when you place this trade the spread betting company makes 1 point * your stake.
Next there are the overnight financing charges. If you leave a rolling daily position open overnight you will have to pay interest on the money that the spread betting company has lent you to make the trade. This money that they lend you is know as leverage. You can read more on leverage here.