Why Choose Spreadbetting Over Direct Access?

To some of you this is not even a question you need answer. Spreadbetting being limited to the UK market means that a lot of forex traders wont be able to use a spreadbetting account to trader. But for those who can this is an important topic you need to address before choosing your trading method.

With spreadbet firms not offering a wide choice of indicators a forex indicator trader does not have to worry about the platform he is using as much as he once did. So should you choose spreadbetting over direct access trading?

Obviously the tax free benefits are widely known and need not be discussed at length. Whether or not the tax free benefit will effect you will depend on how much money you make trading and this will ultimately depend on your trading ability and trading method.

Which brings me to the main point of this article. The Spread. Whilst spreads may seem small whilst spread betting a 0.5 point spread when you are trading can soon mount up. So at 3 contracts on the FTSE you are paying £15 in spread per entry and exit. So a round trip is going to cost you £30 just to trade.

This means you need at least win by +1 point every trade/on average just to breakeven. Whilst I am sure a lot of traders think this is simple but when you consider a trader who uses 20pt stops and 30pt targets could well only be averaging 10pts profit a day you soon see that spread is costing you 10% of your profits.

Imagine you trade once a day; this would add up to £600 per month in spread i.e lost profit. And the difference between spread and direct access market spreads are even wider when it comes to trading forex pairs. In fact the the spread with DA could well be half that of spreadbetting when it comes to FX trading.

So as a trader you will have to decide if the trade off between tax free and spread cost is worth it for you and your trading. In my experience most independent day traders do not make enough money to worry about tax free trading.

If you take nothing away from this site do think about the costs involved in trading. These can make or break your balance sheet. Make no mistake, a good trading system CAN NOT beat high spreads and trading costs. Anyone tells you otherwise is fooling you and themselves. Get the cost of trading under control.

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