Beyond Banking – Understanding Leverage in Spread Betting

As much as we love covering the various topics that come up in the world of banking, we do come to a point where we know some of our readerbase is gong to be a bit more advanced. They’re going to want to know more than just banking. They’re going to be interested in finance. We’re calling out those readers today because they’re special to us. We want to make sure that we provide one of the best and most comprehensive finance sites on the Internet. It makes sense to do it that way, when you think about how the rise of the Web has given way to people being able to seize control of their financial futures primarily through free information.

So let’s talk about something else that’s near and dear to our hearts: spread betting. We love speculation-heavy stuff, and understanding leverage in spread betting is something that we think you should understand if you’re going to want to follow suit. There’s nothing wrong with going towards spread betting, and there’s nothing wrong with avoiding spread betting. However, if you are going to avoid the practice, you need to have your reasons clearly outlined. A lot of newcomers to the world of investing and even some veterans avoid the spec markets because they feel it requires too much startup capital.

The truth couldn’t be further from these assumptions. You see, leverage is all about using other people’s money to kickstart your plans. It means that you aren’t going to have to put your whole life savings into the mix. Let’s say that you find a spread betting company that will give you a 5 to 1 leverage stake. That’s pretty powerful — for every dollar you put in, they’re going to give you 5. So if you put in 20,000$, they’re going to give you 100,000 total for the account. You only have 20% of your hard capital invested in the trading account. That gives you 80,000 extra that you wouldn’t have had without leverage in motion.

Yet leverage can expose you to higher risks, because you do have a lot of someone else’s money hanging around. This means that every trade that you make needs to be pretty calculated as well. While we can’t time the market at all, we can choose how we enter the market — make sure that you choose wisely!