A 2009 report on financial spread betting revealed that many traders who spread bet do so because of the shorting techniques it allows.
"Shorting" is the term given to speculating that a market will fall in value, something which cannot be done directly in standard shares trading.
Through shorting, spread betting provides the opportunity to profit from a falling market as well as a rising one. This makes traders better placed to react to sudden market movements.
For example, imagine the FTSE 100 index price is trading at 6000/6001. You believe the price is going to decrease, so you short (sell) at £10 per point. Over the next week, the UK 100 price falls to 5950/5951, and you close your trade by selling your stake back at 5951.
This represents a 49-point gain in your trade which, when multiplied by your £10 stake, equals a £490 profit. Naturally, if the index had risen by 49 points instead, you would incur a loss of the same amount.
Ultimately, whether you decide to go long or short with your spread bets, you can still lose more than your initial deposit. Solid market analysis is crucial, as is spread betting only with money you can afford to lose. Like the adverts say - spread betting is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
About Finspreads
Finspreads is a leading online financial spread betting firm, offering access to thousands of instruments on the world's financial markets.
Finspreads say that their, “goal is to make financial spread betting as straightforward as possible.
“We focus on delivering quick and easy access to the tools and information our clients need to make their trading decisions, act on them, then monitor their performance.
“At Finspreads we also offer a comprehensive education and support package to help our customers understand and take advantage of the opportunities offered by spread betting”.
Spread trading carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.
Article provided / approved by Finspreads which is a trading name of City Index Limited ('CI'), which is a spread trading and contracts for difference ('CFD') provider. CI is authorised and regulated by the Financial Services Authority, Firm Reference Number 113942.
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'Shorting with Financial Spread Betting' edited by DB, updated 26-Apr-11
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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.
