Short-selling Shares And The Advantages Of Financial Spread Betting
Posted on 26. May, 2010 by Global in Uncategorized
Spread betting shares has certain advantages over traditional shares dealing. Among them are the increased leverage afforded by trading on margin and that profits are free of stamp duty and capital gains tax in the UK. On the other hand, when you buy shares in a company with a traditional broker you actually own a small percentage of that company, receive dividends and also have a say in how the company is run.
Another way financial spread betting on shares can be seen as advantageous over traditional share dealing is the relative ease in which a trader can go ‘long’ (buy) or ‘short’ (sell).
{Short-Selling Shares}
When you go short on a share in traditional shares trading many traders see this as almost betting against the general upward trend of the market.
When you short-sell shares through a traditional broker, the process can be lengthy. To go short the investor borrows the shares from a shareholder, sells them immediately and then buys them back at a lower price in the future.
If an investor sells shares that they have not yet borrowed this is called ‘naked’ short-selling. Many see going short as unnatural, and this is why in times of economic recession the practice can cause controversy. Germany recently introduced a ban on ‘naked’ short selling on shares in its top financial institutions, credit default swaps and government bonds.
It was a bold move designed to help stabilise the financial markets and stop investors from speculating that the condition of many troubled European economies will worsen. However, the debate broadened after the German announcement with Ministers from France, Sweden and the Netherlands saying that they will not do the same.
The financial markets reacted badly with the world’s leading share indexes taking losses the day after the announcement. Many financial commentators saw the move as evidence of further instability and discord within the eurozone.
It will be interesting to see if the markets settle quickly after this announcement. When you spread bet on shares or any other financial instrument, because it does not involve physically owning the share or instrument it’s up to you to decide whether you think a company’s share price or financial instrument will rise or fall.
If you think it likely to rise you would ‘buy’ (go long) or ‘sell’ (go short) if you think it likely to fall.
It’s always important to remember that financial spread betting can result in losses that exceed your initial deposit, so make sure you understand the risks involved.
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