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Wealth Management - Alternative Investment Ideas For The Adventurous |
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One of the challenges in today's markets is looking for a way to make your money work for you.
Interest rates on deposits are low and corporate dividends are hard to track down. Credit rating
agencies are reworking their methodologies and trying to rebuild confidence in their appraisal
standards. So those with money and those looking for more adventurous ways of making more, are
looking at ways to profit from the volatility of the markets. Buying and selling of shares has been an age old part of most people's portfolio. Even if they are not direct holders of stock, if they have a pension fund or any investments in funds, unit or life trusts then they have an exposure to stocks and shares. The advent of the internet and the growth of on-line trading companies has meant that many individuals now actively trade a portion of the portfolio themselves. However, gains are subject to taxes and, whilst losses can be offset against other taxable gains, the returns can be limited. Also, with the volatility and uncertainty that exists in the market, picking an individual winner can be a challenge. Spread betting was developed in the US in the 1940s and started in the US sports industry where people wagered on the outcome of the scoring between teams rather than just the result. It became more popular in the UK in the 1980s when the same techniques began to be applied to the financial and foreign exchange markets. There are two distinct advantages to spread betting: first, it is not subject to tax on the gains or losses and, second, it allows for a leveraging of the investment so the rewards or losses can far exceed the amount wagered. This can lead to significant returns for relatively small wagers – but can also lead to some significant losses. The principle is that the gambler takes a position based on what he or she believes will be the movement in the stock or currencies value. With financial spread betting, a relatively small wager on a given stock price assuming that it will increase in value can bring significant percentage gains. Positions can be held for short periods – minutes or hours – or held open for much longer periods. The costs of holding a position for longer periods increase by being charged interest and all spread betting firms will seek to take a margin. However, with global markets now trading 24 hours a day and the large number of on-line spread betting firms operating, it is possible to set up an account quickly and easily and start trading. Most spread betting forms offer training and education sections as well as software platforms to enhance the trading experience. Foreign exchange trading is similar to spread betting in that you are looking to gain from the movement in value of one currency against another. Many large corporations do this as part of their normal hedging of import and export costs, but the market is now open to smaller scale traders. Once again, the leveraging of a small deposit can enable a large position to be held. Some traders require as little as a 1% trading deposit meaning that a $10,000 position can represent a $1m trade. Most positions are made on a dealing spread basis (usually 3-5 points) with no further commission payable. This means, for example, that US dollars against the pound can be sold at 1.4880 and bought at 1.4885 with no additional commissions or charges to pay. With typical daily movements of 100 – 150 points, it is clear that there are significant rewards to be had. Spread betting or foreign exchange trading is not for the inexperienced or feint hearted. However, it can offer high gains – but also carries the risk of large losses due to the leveraging effect on the bet placed. Positions can be protected by putting in place stop loss or stop gain positions so downside risk and upside gains can be protected. As a more active and involved, high adrenalin way of supplementing the returns on a portfolio, spread betting or forex trading can be a way to go. Just trade carefully and well within your means. |