Financial Spread Betting in the UK
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Spread betting is often a term associated with sports where bettors bet on an unknown sporting outcome. The spread betting company quotes two prices, the 'spread'. A bet is made on whether the outcome will be above or below this spread. The profit or loss depends on the extent of deviation from the spread once the event is over.
For example let's take a betting scenario in a football match. The spread betting company sets the spread for 10-12 corners in a match. A bettor approaches the firm and buys at £25 per corner above 12 corners. If the total number of corners in the match is more than 12, eg 16 corners, they make a profit
Profit = (16 - 12) x £25 per corner = 4 corners x £25 per corner = £100 profit.
However, had there been some good defending there may only have been 9 corners in the game in which case the user would lose. Loss = (12 - 9) x £25 per corner = 3 corners x £25 per corner = £75 loss.
In a 'Sell' transaction, where you bet on the market to go down, the function works in the same way except the bet is made against the bottom value of the spread. In this case a 'Sell' bet would be betting on less than 10 corners.
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In financial spread betting investments are made on the movements of the price of a financial instrument. With financial spread betting you can make a profit even when the prices are falling. Financial spread betting in the UK is a highly popular investment option. But it also has some risks because you can lose more than your initial investment. Spread betting is similar to share trading but it is not for everyone. Before you start you must fully understand the risks involved. You should only trade with money that you can afford to lose.
When you spread bet on stock market indices, the stock market indices, eg FTSE 100 or NASDAQ 100, act as the financial instrument. The investor speculates on the price movement of the whole stock market index. Unlike share dealing, you do not actually own the shares. Also, you cannot offset your losses against tax. Traders of financial spread betting can minimise risks by limiting losses with the use of a 'Stop Loss', ie an order that automatically closes the bet if the value of the spread moves against them by a specified amount.
Leading UK spread betting companies include IG Index spread betting, City Index, Cantor Index and Financial Spreads. These companies provide essential information for financial spread betting in the UK. Some also provide sports spread betting. Some firms go further and provide news, views & analysis.
Financial spread betting in the UK has enabled many bettors to make a quick buck. But for cautious investors, it is better to study & understand the financial instrument before investing. So before you start with your online spread betting in the UK, make sure you understand the risks involved and study the jargon and markets well enough so as to get a good idea of the nuances of financial spread betting.
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. 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 Spread Betting in the UK' by KK, updated 15-Jan-10
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