What is Financial Spread Betting
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Spread betting is available on a huge variety of financial markets. You can also spread bet on sports and novelty markets. Although most spread bets are placed on Indices eg FTSE 100, individual shares, forex and commodities.
You may want to create a balanced portfolio but it's considered wise to trade the markets you know well.
What is financial spread betting? Financial spread betting includes betting on Stock Market Indices, Shares, Currencies, Bonds and Commodities such as gold, silver and crude oil. Financial spread betting simply enables you to speculate on whether a market will rise or fall beyond a certain range of values.
With spread betting, you bet on the direction you think the market will move. If you think the market will go down because of the credit crunch you can bet on the market to go down. There is no fixed profit or loss.
What is the spread? The "spread" associated with spread betting refers to a range of values between the 'sell' or 'bid' price and the 'buy' or 'offer' price quoted by a spread betting company. Put simply, it is the difference between the buy and sell price. The betting company quotes the spread based on the expected future value the market in question. For example, if a company quotes at 6101 (the sell price) – 6104 (the buy price) on the FTSE 100 index, it has a 3-point spread.
Some companies like Financial Spreads offer a 1pt FTSE spread on their Daily Markets. eg the Daily FTSE spread is currently quoted at 6259-6260.
What is going long or short in financial spread betting? If you expect the market price to rise, you bet on the higher value of the spread. This is called Buying or Going Long. On the other hand, if you estimate that the price of market will fall, you spreadbet on the lower value the spread. This is called Selling or Going Short.
A clear benefit is that there is no income tax or capital gains tax* on the profits you earn from spread betting. Spread betting can be profitable but you need to look at the risks as well. With spread betting you can lose more than your initial investment.
Before you begin, it is important to study the rules as well. Make sure you understand when you can trade, if there's a stop loss, when the bet is closed etc.
Some suggest that you start betting in smaller amounts. Of course you may miss some opportunities if you do this. However if you bet in smaller amounts then you'll probably be betting for longer and learning more along the way.
To find out more, see:
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.
'What is Financial Spread Betting' by DB, updated 23-Nov-08
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