The dynamic and volatile nature of spread betting and financial instruments means that it is very important to choose the right firm with which you have researched, and believe carries the lost level of counterparty risk. When referring to counterparty risk, think Lehman Brothers, and all the trades it did not honor when it filed for bankruptcy. Spread betting firms each carry the same element of counterparty risk, which you should be aware of.to risk your money.
In this short article we will look at some of the obvious and not so obvious factors that would be spread betters should look out for when deciding which platform to choose.
Firstly, and very importantly, budding traders should always choose an FSA-regulated platform. Regulation ensures that client monies (monies held by firms in trust) are protected and also provides spread betters with the peace of mind that they have a legal right to their winnings.
Firms complying with FSA regulation are also likely to be more robust, with a strong underlying capital base and therefore less likely to fold – taking your money with it. For example IG Index is now backed by Michael Spencer, one the richest men in the City and owner of ICAP, the world’s largest interdealer broker.
A number of other factors, more integral to the service that spread betting firms provide should also give clues as to the right platform for you. Some of these factors include:
• Although spreads have generally tightened over time due to increased competition in the sector, some companies offer tighter spreads than others so it is a good idea to research different firm’s spreads.
• Speed of execution of the trade is also crucial when spread betting so familiarising yourself with a platform’s trading interface is also important. Some spread betting sites allow you to trial a demo of the interface before going live. However, it should be noted that some demo interfaces do not reflect the execution speed of the live interface so new users should be cautious about placing large bets before they are fully acquainted with the live interfaces.
• In the fast paced and volatile environment of spread betting time is literally money and you could be very frustrated watching profits turn to losses because your trading interface is too slow or crashes too frequently.
• You should also make sure that the lists of instruments that you are trading, known as watchlists, is easy to access and clearly presented.
• Most well known instruments should be available to trade on most platforms but if you are interested in trading more exotic instruments such as certain currencies you should check their availability first on the platform before opening your account.
• A large number of spread betting firms also offer you an email and telephone support service. It is a good idea when deciding which platform to use to call their traders customer service lines to see how helpful they really are. In the event of an emergency this support will be crucial.
• Another thing to look for is trading times. For the intraday trader this should not be a problem but if you are holding positions over-night or long-term then out-of-hours functionality is key so that you can adjust stops and limits after markets close.
• Financing charges also apply for longer-term positions, which can add up particularly with larger trade portfolios.
• Finally, charting packages can differ from platform to platform. Most platforms offer charting tools which is generally adequate for ordinary investors. However, one way around this is to set up an account with a firm that uses metatrader, which is probably the most sophisticated package on the market, and some spread beting firms offer this free with their platform.
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