Understanding Financial Spreads
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The phrase "financial spread betting" refers to the speculation on the future value of financial products. Financial spread betting is based on understanding market movements of different products.
As a trader you can speculate that the market value of a particular product will increase, in which case you would “buy” that product. eg if you thought that the price of Brent Crude Oil would rise you would “buy” Brent Crude Oil with a spread betting firm like FinancialSpreads.com. You don’t end up actually “buying a few barrels”, you are simply betting on the value increasing – with spread bets you don’t actually own the share, commodity, currency etc.
Likewise, as a trader you can speculate that the market value of a particular product will decrease, in which case you would “sell” that product. eg if you thought that the price of BA shares would go down you would “sell” BA shares, again with a spread betting company like FinancialSpreads.com. Again don’t actually “sell BA shares”, you may not own any BA shares in the first place, you are simply betting on the value decreasing.
CleanFinancial.com provides free information on financial spread betting companies along with free financial spread betting strategies.
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Defining the Spread
When we refer to the spread it means the difference between the buy price and the sell price of a given listed product.
Financial Fixed-Odds Betting and Spread Betting
With fixed-odds you can bet, let’s say, £50 at odds of 6/4 that the FTSE will be above a certain level at the end of the day. If you win, you win £50 x 6/4 = £75 and you also get your £50 stake back.
If you lose, you lose your £50 stake.
However with spread betting it’s more volatile, the more you are right the more you win, the more you are wrong, the more you lose. That’s to say you can win (or lose) many multiples of your stake. For more details see what is spread betting
Companies providing spread betting services in the UK
Cantor Index: Cantor Index spread betting is one of the leading companies which offers online financial spread betting services. Cantor Index offers 24 hour online trading. However be careful of out-of-hours trading ie trading outside normal market hours, the width of the spread is often wider and that makes spreadbetting more risky / more expensive.
City Index: City Index Spread Betting also provides a number of benefits for opening up a financial spread betting account with them. Namely the convenience of a fast, flexible trading platform and a range of different markets.
FinancialSpreads.com: Financial Spreads say that they aim to provide the maximum returns to customers due to their narrow spreads. They also have an automatic stop-loss facility which helps minimise your risks while betting. Note that stop losses are useful but the actual value isn’t always guaranteed.
Clean Financial is an online resource that provides free financial spread betting information about financial spread betting in the UK and Ireland.
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.
'Understanding Financial Spreads - Financial Spread Betting' by KK, updated 05-Dec-08
For related pages also see:
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History of Financial Spread Betting, updated 28-Jan-09
The rise of spread betting in the UK can be dated back to the '70s when in '74 IG Index was founded. At the time IG Index was the only spread betting company in the UK. This initial growth was helped partly by the liberal UK Government tax policies...read article.
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