What are the trading risks?

As spread betting is a leveraged product, the same time it offers great opportunities of making substantial profits, it can also cause a greater lose, more than your initial deposit, if the market moves aginst you. As such, a comprehensive suite of risk management tools is always made available to clients, enabling them to manage their exposure to positions.

Any investment carries with it a degree of risk and financial spread betting is no different. As mentioned previously, if the market turns against you, it is possible to lose more than your initial deposit, and you may have to make additional payments to cover any losses. Measures can be taken to manage and even minimise any risks. Spread bet providers want their clients to make money so they return to trade another day and as such, comprehensive risk management suites are made available. Put simply, any successful spread better should always be clear at what level they will take their profits - the target price - and at what level they will cut their losses - the limit price. As an example, our investor buys Barclays at 275p on the assumption that the share price will rise. She also decides in advance that if the price passes 300p profits will be taken, whilst if the price falls below 250p, it is time to close the position and accept the loss. Although this can be done manually, parameters can also be programmed into the trading platform that would close the position at the first available price should the market move past the noted levels.

In a rapidly moving market there can be some problems closing out positions that are moving against you as each position needs a counterparty - for every seller there must be a buyer willing to trade at that price. In the event that the British Airways share price falls quickly from 325p to 290p, it may be that although the client set a stop limit order for 300p, the price realised is some way below that. However, proactive spread bet providers realise that this may not be ideal for all clients, so for a small premium (the quoted spread is marginally wider) something called a guaranteed stop can be put in place. This allows the client to guarantee the closing price of any deal - something that can on occasion be difficult to achieve if markets are illiquid. Flexible innovations like this see yet more people being attracted to financial spread betting.

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Spread Betting, CFDs and Forex may not be suitable for all investors so ensure you fully understand the risks involved, and seek independent advice if necessary. These products are leveraged products and carry a high level of risk to your capital as it is possible to lose more than your initial investment. *Tax laws may change.

For the purposes of trading CFDs and Spread Betting, London South East Limited has introduced you to LSE Spreads, which is a trading name of Spread Co Limited ("Spread Co"), a company registered in England and Wales under registered number: 05614477, with its registered office at 22 Bruton Street, London W1J 6QE, authorised and regulated by the Financial Services Authority (FSA registration number 446677). For the purposes of trading CFDs and Spread Betting, the contract is between you and Spread Co and your account is with Spread Co. All dealing, administration and settlement in relation to your account is undertaken by Spread Co. London South East Limited is an Introducer Appointed Representative of Spread Co.

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