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Financial spread betting is getting more and more exposure in the mainstream press and with that increased exposure comes closer scrutiny. Two reasons for the surge in popularity of financial spread betting are that it is free from Capital Gains Tax and you can take a position on a falling as well as a rising market.

You spread bet on margin so you don’t have to pay the full value of the underlying financial instrument you just pay a small deposit which gives you leverage of up to 20 times your initial outlay.

While there is no doubt that financial spread betting can bring rewards it can also amount in losses.

Here’s three points to think about before you open a spread betting account.

Get Serious About risk

It’s in the nature of financial markets to be volatile. And while that presents investors with opportunities there are risks involved. It’s important you are sensible about managing risk from the start.

It pays to be cautious, especially if you are new to spread betting. Successful traders manage their risk right from day one.  And they keep doing it even when they get more experienced.

Before you place a trade calculate how much you can afford to lose and place a stop or limit at the point where you would exceed this.

A good idea would be to use the two percent rule which is favoured by many. The two percent rule simply means that every single new position that is opened by the investor should not risk more than two percent of their capital.

So an investor with $50,000 would risk only $1000 per trade, meaning that it would take an unlucky run of 50 straight losses to for them to lose all their capital.   

You can also put stops and limits on your trades. If you place a guaranteed stop, your trade will be guaranteed to stop at that point, even if the market suddenly moves against you.

Provider and Platform.

Choose an established spread betting provider, one that has been around for a while and is successful. If you’re new to financial spread betting choose one that will provide educational resources to help you get started in the right way.

And, going forward, choose one who provides ongoing support to help you improve your trading skills.

When spread betting online, it’s important you choose a reliable and secure trading platform. Not all trading platforms are the same, look for awards gained in industry magazines. {And do your research online, what do experienced spread bettors recommend?And look out for awards given out by industry magazines}.

Margin and Spreads.

Of course spread betting online isn’t free. Compare competitor websites and look for the most competitive margins and spreads.

Choose a financial market to spread bet on and then choose the provider who gives the best deal on it.However you should consider the whole package that the provider offers, from the platform, the risk management tools to the educational resources.

A recent report by research organisation Investment Trends suggests that the company with the most spread betting accounts in the UK is IG Index.

IG Index provides its clients with a free educational programme and expert market commentary.

Remember that financial spread betting is a leveraged product and can result in losses that exceed your initial deposit. Spread betting may not be suitable for everyone, so please ensure that you fully understand the risks involved.