Lets focus on investments in the indices rather than individual shares for now, for the sake of simplicity.
Lets say someone wants to be long FTSE 100. Firstly the margin requirement is 5%, so 25% could be deposited and managed to ensure that the value of the account is always 25% of the gross securities position. So as the market goes up, cash could be withdrawn from the account and as it goes down, cash would need to be deposited.
There are significant cash flow advantages here, and the cost is only 3% p.a. (granted in reality it's more because you also lose interest on the amount of funds in your account). So, is this a realistic approach? Pros vs cons...? Discuss
"What is spread betting's role in a long term portfolio?"
None if you have any sense!
You will probably get a few answers here about the tax benefits of spread betting, but that is an irrelevance because you will almost certainly lose money, not make it. You will find people telling you about how spread bets can be used for hedging, e.g. to protect against short term market moves.
But I am writing as a failed futures and spreadbet trader, and I say just avoid these things like the plague.
It is a strange, but well documented fact that most people who trade on margin lose money. A few do make a fortune, but they are a very small minority of disciplined traders. For most people the temptation to overtrade and not adhere to good money management rules is just too great. Psychologically it is very hard to do the right things. It is far too easy to let losing trades run. It is far too easy to use the low margin requirements to make bets which are too large.
Make no mistake about this. Most futures traders working lives are measured in months not years.
If you are tempted by spread betting I strongly recommend the book "Come Into My Trading Room" by Dr. Alexander Elder. It deals with the subject of market psychology and explains some of the reasons why most traders lose.
But better still, take a piece of advice which Dr Elder gives in that book. Instead of trading the futures markets, just take your money to Las Vegas and gamble in the casino's. The end result will be exactly the same, but in Vegas the floorshows are much better.
