Benefits and Risks
What are the Benefits?
There are lots of reasons why financial spread trading might appeal to you:
Wide Range of Products
Saxo Bank Financial Spreads offers you thousands of different products including shares, commodities and metals, currencies and indices. We quote Futures contracts as well as Rolling Daily contracts. You can make a trade on a variety of these products in just one currency. For further information on the full range of products we offer, please click here.
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No Commision or Fees
Saxo Bank Financial Spreads does not charge any commissions or brokerage fees when you open and close trades. We make our profits from the spreads that we apply. There are also no fees for holding an account, so you can leave your account with a zero cash balance at no cost to you.
Trade on Margin
As financial spread trading is a derivative product it means that you trade on margin. Trading on margin means that you only have a percentage of your total exposure in your account to open a trade. For example:
If I buy 500 shares of HSBC at 800p, my total exposure (investment) is £4,000.
The equivalent in spread trade would be to buy £5 per point at 800, with the SAME total exposure of £4,000.
You do not need £4,000 in your Saxo Bank Financial Spreads account in order to open the position, you only need a small percentage i.e. 3% = £120.
With only £120 of margin required to open a trade worth £4,000 this means that you have freed up £3,880 of capital to put to use elsewhere.
Tax Free Profits1
Any capital gains you make from financial spread trading are completely free of Capital Gains and Income tax (for UK residents).
No Stamp Duty1
Financial spread trading is exempt from UK stamp duty.
Financial spread trading is a high-risk activity, but at Saxo Bank Financial Spreads we want you to enjoy your trading experience. Our online system automatically generates a stop loss for each position you open, therefore your financial risk is significantly reduced. Stop losses are not guaranteed and can be amended so that they are either closer to your level of entry or further away (subject to available funds being on your account).
Limited Risk
Financial spread betting is a high-risk activity, but at Saxo Bank Financial Spreads we want you to enjoy your trading experience. Our online system automatically generates a stop loss for each position you open, therefore your financial risk is significantly reduced. Stop losses are not guaranteed (unless you specifically opt for your Stop to be guaranteed) so in the event of a market gapping, you may not be filled at the level you requested which means you may lose more than your initial deposit. Click here for more details about Guaranteed Stop Orders.
Bull or Bear
One of the most obvious advantages of spread trading is the opportunity to go short of (or sell) shares and other financial instruments such as commodities, currencies and indices. You can therefore profit from both rising and falling markets.
Regulated Industry
Financial spread trading is an industry which is tightly regulated by the Financial Services Authority (FSA). Spread trading profits benefit from the UK Government Tax Waiver. Apart from this, spread trading is considered to be a financial derivative product. Our regulation by the FSA means that we have to abide by strict rules and regulations which ultimately mean you have the comfort of knowing that you are working with a reputable organisation.
Stake Size of Your Choice
Spread trading also allows you to trade in sizes smaller than those usually available in the underlying market.
Trade in one Currency
Unlike other financial services organisations, financial spread trading allows you to conduct your business in one currency avoiding costly currency exchange fees.
1Tax laws are subject to change and may differ in other jurisdictions outside the UK
What are the Risks?
Although you can make substantial profits from financial spread trading, it is important to note that it carries a high level of risk to your capital, so you should only trade with money you can afford to lose. Saxo Bank Financial Spreads has a policy of attempting to limit client losses by applying an automatic stop loss to each trade you, but these stops are not guaranteed. As a consequence, if a market gaps, you may lose more than your initial deposit.
For example, margin trading can have its benefits by freeing up a large percentage of you capital (as shown in the example above under Trade on Margin), but you are still liable to any unforeseen and unexpected adverse market movements. As with the example above where you only need £120 on deposit for a £5 position in HSBC at 800p, in an extreme scenario you could still lose £4,000 (for example, if HSBC went bust overnight).
Before you apply for an account, please ensure that you familiarise yourself with the risks involved and that spread trading matches your investment objectives. You may wish to seek independent financial advice before applying for an account. If you are new to trading, we recommend that prior to applying for a Live Trading Account, you open an online Demo Account and follow our online User Manual. If you want to know more about the risks involved, please click here to read the risk warning on our website.
1Tax laws are subject to change and may differ in other jurisdictions outside the UK
Click here to find out why Saxo Bank Financial Spreads offers such a great service.
