Is Spread Betting Easy Money

This is a claim I've seen made several times on the internet and to be honest I am disturbed by it. To set the record straight I want to state categorically that spread betting is not easy money. I would argue that spread betting is very hard money. Let me explain why...

Your Getting Paid To Take Risk 

What a spread better is really doing is making a bet and taking on the risk that they are wrong or that markets will move against them. The more leverage (i.e. money you borrow to trade with) the more money you can potentially make if you are right but this also works in reverse.

You Can Blow Up Spectacularly

One of the biggest risks in spread betting is that if the market moves against you, you lose money unbelievably fast. Lets imagine you decided to bet that the FTSE was going to go up at £10 point before the crash. This could be just one bet of many in your account - its a pretty standard bet. Now, lets imagine you finally get out 2000 points down. At £10 per point your down £20,000 which will really hurt. You will probably gets lots of margin calls you can't meet and hence all your trades will be forcibly closed regardless if they are up or down.

Don't Be Fooled By Demo Accounts 

Why do brokers offer demo accounts? It's not because they are nice or looking to educate people about the markets. No. Unsurprisingly, as practically every broker has invested in developing and aggressively (not to mention very expensively) advertising them; you would expect that they make a lot of money for the brokers. The point of demo accounts is to convert site visitors (many of whom are paid for) into real money betters.

I created this demo account and put on a simple bet. I used the maximum margin, no diversification and no stop loss. This is a very dangerous bet. However, by change I made a huge amount of money. Therefore I'm a genius and should get a real money account. Please note the sarcasm.

The real danger with spread betting in a demo account is that you will take too much risk because you can’t lose real money and hence may, by random chance, make a lot of ‘money’. But why is this bad?

The reason is that you may make a lot of money which will convince you that what you're doing works and then you will get a real account and blow up. Don't let a demo account make you overconfident. If you are so much of a novice that you need a demo account then it is luck not skill that explains your "profits".  

Though, I'm not against demo accounts. If you are going to spread bet for real using a demo account is a must. You cannot afford to make silly mistakes when trading for real on margin. When you are first confronted by a trading station it is pretty overwhelming and confusing. Demo accounts let you get used to how things work and get a feel for how the game is played. 

I really hope that this article has convinced you that spread betting is far from easy. In the wrong hands it is a disaster waiting to happen. Don't believe any claims that it’s easy or that anyone can make money. Successful spread betting is a minority sport and its certainty not for widows and orphans.