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A Second Income Stream on the Cards? Check this Out!

A Second Income Stream on the Cards? Check this Out!
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We are going to begin this finance article by addressing some of the shortfalls of traditional investments in your financial portfolio. Many of us today believe the only way to generate a return on investment is through asset depreciation.

Think of it for second: You buy a stock for £50 and it appreciates to £65 at the end of the year, for a profit of £15, give or take fees and commissions.

This linear process has its proponents and its detractors. On the one hand, it is easy to gauge an asset’s performance based on its purchase price and its current price. However, there are many inherent pitfalls in traditional investments for financial portfolios.

Consider the following:

If you have £50,000 of capital available, that money needs to grow by way of asset appreciation, stock dividends, or interest-related yields.

When you take £50,000 and you spread it across financial assets such as stocks, commodities, indices, currency pairs, bonds etc., you are taking that money out of circulation for a period of time. In traditional stock markets, those funds are locked up as you wait for your preferred financial assets to appreciate.

Typically, investors in the US will purchase stocks as part of their retirement portfolio in a 401(k) account and hold them for many years. The incremental returns that are generated through dividends may be less than the money that could be generated through investing in emerging market economies where interest-related income is significantly higher. However, the point being the velocity flow of money is curtailed since your funds are tied up and you don’t have anything to generate additional income with. While you’re waiting for conventional asset prices to rise, all your proverbial eggs are in one basket.

Is There a Better Way to Trade Financial Assets?

Experts across the board agree that too much concentration of your resources in any form is inherently risky. A better approach is diversification. It is always advisable to keep a percentage of your retirement portfolio available in traditional stocks, bonds, fixed-interest-bearing accounts and possibly in currency form. However, the rapid growth of cryptocurrency trading, derivatives trading, and online trading necessitates a close look at alternatives. Today, spread betting is one of the most popular investment options in the United Kingdom. It has gained traction with a large and growing number of traders across the UK, Continental Europe and beyond. For the savvy trader, spread betting is a no-brainer.

What Is Spread Betting?

Spread betting is all about forecasting price movements on the financial markets. Instead of purchasing an underlying asset outright, you simply purchase a contract which is either bullish or bearish on the asset. Since a wide range of assets is currently available – Forex, indices, commodities, bonds, stocks etc. – you have carte blanche to pick your poison. You purchase the right to buy or sell a contract of your preferred financial instrument. If the price moves in your favour, you will benefit from every price movement (point). These derivatives trading instruments are increasingly popular in the United Kingdom, and across the trading spectrum.

One of the leading UK spread betting platforms is ETX Capital. This broker offers some 5,000+ financial instruments. These cover a wide range of asset categories such as shares, indices, commodities, bonds and Forex. The many inherent benefits of spread betting over traditional trading are apparent when you generate profits from your trading activity. For starters, all spread betting capital gains are tax-free, and commission free in the United Kingdom. CFD trading – another derivatives trading instrument – is not tax-free in the UK. Any profits from spread betting are stamp duty free too. However, tax liabilities cannot be offset with losses in spread betting activity.

Profit off Rising and Falling Markets

Then of course there is leverage and margin. Recall that margin is the percentage of funds that are required to open a position for trading activity. Your leverage could be as high as 200:1 on specific financial assets, meaning that you can trade substantially more than the money available in your account. And, with spread betting you can go long or short on your financial trading activity – markets don’t need to appreciate for profits to be generated. Spread betting differs from CFD trading, although both are derivatives products.

By speculating on the price movements of your chosen assets, you can generate profits when these asset prices move in your direction. The great thing about spread betting is that it can be used as a second stream of income. Since you’re rolling over money fairly quickly, your funds are not tied up in long-term assets with sluggish growth prospects. If you are able to read macroeconomic variables, understand geopolitical events, and fathom the effects of market volatility you can easily dabble in spread betting activity.