Spreadbetting is the name of the game

Spreadbetting is the name of the game, it appeared this week as newly released figures showed a 134 percent increase in the number of trades.

According to a UK Wealth Management Industry report produced by ComPeer, a research company, there was also a dramatic increase in the number of spread betting accounts opened. The total grew by almost two and a half times from 7 427 at the end of 2007 to 18 012 a year later. At the beginning of 2006 there were fewer than 1 500 accounts.

Among execution-only stockbrokers, which allow traders to make their own decisions without advice, 1.4 million spreadbet trades were transacted in 2008, over double 2007's volume of just under 600 000.

Spreadbetting has become increasingly popular in recent years as traders take advantage of tax-free gains, lack of stamp duty and the fact that, by comparison with traditional share trading, smaller stakes are needed to make large gains.

"During the last three years, spreadbetting has emerged and thrived among clients of execution-only stockbrokers," the report said. "Investors have been attracted by their characteristics – no direct commission or stamp duty, the ability to profit on markets going down as well as up, freedom from capital gains tax and the ability to deposit only a proportion of the contract value – especially given recent market volatility."

Trading in contracts for difference, another type of "leveraged" trading that allows large profits to be made from small stakes, also rose. The number of trades increased by 30.5 percent last year and by 12.3 percent year-on-year in the first three months of 2009, the report found.

It added that since the start of 2007 the number of CFD accounts had risen in every quarter. Between the end of 2007 and the end of 2008, the number of CFD accounts increased by 22.3 percent to just under 14 000. The trend continued in the first quarter of this year.

The figures reflect the boom in the online "day trading" phenomenon: individuals, often former City professionals, buying and selling at home using broadband Internet connections.

"With over 60 percent of households having access to the Internet and with execution-only firms offering cheap, fast and content rich trading facilities, online trading has become by far the most popular trading medium, well ahead of telephone and postal dealing," ComPeer said.

"In 2008, 7.7 million execution-only trades were transacted online. To put the rise of online trading into perspective, in 2000, when trading reached its peak, there were 2.7 million online trades."

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