Financial fixed odds trading on the financial markets allows you to speculate on a wide variety of markets, with the knowledge of how much you could win or lose from the outset. It's called ‘fixed odds’ betting because your returns are fixed at the point that you place the trade.
Like betting on sports, you make a calculated prediction on a future event and you are offered odds based on the betting firm's prediction of how likely this event is to happen.
These odds are expressed in an amount of money the bet will cost you to buy in relation to the amount of money you want to win. You will see the total amount of money you will win, the price of the bet, the net profit should your bet win and the percentage return. Note that if you lose your trade you lose 100% of your stake.
Financial Fixed Odds Trading Example:
Market:
UK Index (FTSE 100)
Trade:
UK Index to Closer Higher than 5800 in 7 Days
Price for the Trade / Stake:
£16.55
Return/Payment (if you are right):
£50.00
Potential Loss:
£16.55
Potential Profit:
£33.45
Potential Loss (as a percentage):
100%
Potential Profit (as a percentage):
202%
There are a whole range of things that you can trade. For example with BetOnMarkets you can speculate on:
Whether the Lloyds Group share price will hit 90p within the next month
If the Euro/Sterling rate will hit parity this year
What Gold will do over the next 10 minutes
Financial Fixed Odds Trading - Four Important Variables:
The Type of Trade: There are many bizarre bet types you can try but the bread and butter of most traders will be:
A ‘Touch/No Touch’ or ‘Stays In/Out’ trade. This means you are expecting the market to either ‘touch’ or ‘not touch’ a certain barrier some time during the duration of the trade, eg the FTSE will not touch 5900,
A ‘Higher/Lower’, ‘Rise/Fall’ or ‘Ends In/Out’ trade. It doesn’t matter where it touches, it just matters where it closes, eg whether or not the FTSE 100 will close above or below the level it was at the beginning of the year.
The Barrier(s): This refers to the exact level you think the market will ‘touch’, ‘avoid’, or ‘close’ higher/lower than. Some financial fixed odds bets can have two barriers such as an ‘In/Out’. This basically means that you are predicting the market will stay between or go outside two set points.
The Time Limit of the Trade: This refers to the time you are going to bet on for the market to hit/avoid the level you predicted. Your trade might be over a few hours or over a few months.
The Price Offered: This is the final and, in some ways, the most important part of fixed odds trading. If something is likely to happen, the fixed odds firm will offer you returns as low as 5%. This means you would be risking £20 to win £1.
If something is very unlikely to happen you could be offered returns as over 1000%, which means you would be risking £20 to win £200. High risk traders seek to correctly predict unlikely events for large returns, whereas more conservative traders look to build their nest egg slowly but with a higher number of low risk trades.
Please Note: Financial fixed-odds can become addictive. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Financial Fixed Odds Trading' by DB, updated 02-Nov-10
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.
