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getrichdietrying (82.16)

Fools Leaverage your money 1:300, is it worth it?

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April 27, 2009 – Comments (3)

How would you like to call make a call on a stock without outright buying the stock and than walk away with the money without having 97% of your capital tied up in said stock till it reaches your sale/cover point? A blog or so ago, I stated I wish I had money to own what I listed....and than asked where I can screen foreign stocks ...In researching that I found that in the rest of the world, mostly in the UK there is something called spread betting. Heard of it? Than tell us what the pros and cons are...In my reasearch I found that you can for exmple trade on margin just like here, but with a major twist:

"As financial spread betting 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 1000 shares of AA at $8.85, my total exposure (investment) is $8,850.The equivalent in spread bet would be to buy 3cents per point at 8.85, with the SAME total exposure of $8,850.You do not need $8,850 in your Spreads account in order to open the position, you only need a small percentage i.e. 3% = $265.5.

With only $265.5 of margin required to open a trade worth $8,850 this means that you have freed up $8,584.50 of capital to put to use elsewhere."

The difference in what a spread(bet) means is that you do not own the underlying stock. And it is "Not Available to US residents." Now read that again....and again,......and again.

Now if your wondering if it is better to hold a common stock with all your capital invested, think Enron. Wake up one morning and you lost all your capital in that stock, you would be the last one to be paid after bk settles with everyone else first, that is if anything is left after that.

Here is a link that reviews different companies out their, it's not much, but a start:

http://www.reviewcentre.com/products2420.html

My questions to those of you who know about these companies that are located in UK,and are monitored by their version of the SEC; please tell the rest of us what you learned and what your experience was.

For those of us who do not know; please leave your questions here, and if you find the answers leave them here to. 

Sound Off and keep this post alive if this helped you, and will help others.

 

3 Comments – Post Your Own

#1) On April 27, 2009 at 2:38 PM, EverydayInvestor (< 20) wrote:

"Now if your wondering if it is better to hold a common stock with all your capital invested, think Enron. Wake up one morning and you lost all your capital in that stock, you would be the last one to be paid after bk settles with everyone else first, that is if anything is left after that."

Fallacious logic detector says Achoo! Your economic exposure in your spread bet case is the same and your loss is the same. You just need to come up with capital from elsewhere to pay off your loss. 

http://www.investopedia.com/terms/s/spreadbetting.asp

Offering extreme leverage is how we got into this mess. Options and Reg T margin offer more than enough. 

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#2) On April 27, 2009 at 2:48 PM, chk999 (99.97) wrote:

Read up on Vic Neiderhoffer before you decide to use leverage.

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#3) On April 28, 2009 at 2:12 PM, guidfarr (< 20) wrote:

the site to check for spread betting info is http://www.financial-spread-betting.com/ especially the faqs are helpful http://www.financial-spread-betting.com/Spread-trading-faqs.html

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