Financial Trading and Tax Free Investments

So it looks like we managed to avoid a 1930’s style depression. However, the current forecasts still suggest slow growth and a difficult time ahead. So what should you do in a difficult environment with your own finances?

Diversification of assets, tax efficiency and opportunities in volatile markets are all key areas for many investors. Most of us could benefit from a little more research and financial planning.

Many are turning away from pure funds and pensions and considering newer forms of trading that provide new opportunities. Financial spread betting is becoming more and more popular amongst investors. The wide range of markets on offer is considered one of the many benefits; as is the fact that spread trading offers quick access to markets around the world.

Before I continue, it should be noted that, as with all forms of speculation, there is a negative side. You can lose more than your initial stake. If that’s the case, it’s reasonable to ask, ‘why should I trade?’ the answer is quite simple, there are a good number of advantages.

Firstly, spread betting firms generally do not impose commissions or broker's fees.

Secondly, there is no capital gains tax, no stamp duty, and no income tax on spread bets*.

Thirdly, you can now control your risk. Stop losses were introduced into the spread betting environment to help investors limit their potential downsides. When you trade you can set a Stop Loss. If the market hits this level, then your bet will automatically be closed. In this way, losses can be reduced by closing a losing bet before it gets too bad.

If you are thinking about trading or exploring this further, where should you look? A number of spread trading firms offer the usual benefits of letting you trade thousands of international markets as well as letting you trade outside normal market hours. Spread betting companies, like FinancialSpreads.com, will also let you trade markets like Oil, Gold, the German Dax and the UK FTSE from Sunday evening all the way through to Friday evening.

Whilst there are a good number of positives, it is important to understand the negatives. Spread bets carry a high level of risk so you should only speculate with funds you can afford to lose. Before trading, please ensure that spread betting matches your investment objectives, familiarise yourself with the risks involved and, if necessary, seek independent advice.

What else should you bare in mind? In the numerous chat rooms and internet forums there are many trading theories. Some tips are actually quite good, some are less so. Here are two of the more common, and sensible, principles.

Control your emotions. Emotions can get in the way of the trading, especially after you lose a trade. Using orders like Stop Losses and Limit Orders can help control trading decisions. Having a plan and sticking to it will naturally help. Remember that ‘chasing losses' or ‘revenge trading', ie trading after you have just lost in order to recoup your investment, will often result in two losing trades.

Finally, it is often worth trying a spread betting demo account. These are free accounts with virtual funds. If you are new to spread betting then a little practice should help you understand the risks and rewards. Firms like FinancialSpreads and Capital Spreads offer these for free.

* According to current UK tax law, if you pay tax in another jurisdiction this may vary.