What Is Spread Betting?
|
|
|
- It is a relatively simple way of allowing you to bet on shares / markets without owning any stocks
- Financial spread betting is predicated on some basic principles:
- If you think that a financial market will rise in value, then you can bet on the value of the market going up. This is called "Buying" or "Going Long"
- If you think that a financial market will fall in value, then you can bet on the value of the market going down. This is called "Selling" or "Going Short"
- Profits and losses will then vary depending upon how much the markets move up or down
Buying (Going Long)
You Buy a financial market / product that you believe will rise in value. If in due course your prediction is right, and the value does increase, you can make a profit.
If you are incorrect and the value of the market / product falls, you will make a loss.
Selling a falling financial market or product
You Sell a financial market / product that you believe will fall in value. If in due course your prediction is right, and the value of the market / product does fall, you can make a profit.
If you are incorrect and the value of the market / product rises, you will make a loss.
What is Spread Betting?
- Spread betting is an alternative to buying specific stocks. You are simply speculating on the direction of the future price movements in an underlying market. ie you bet on whether you think the market will rise or fall
- It's a simple way of trading on non-share based markets such as commodities, forex or interest rates
- It is a cost efficient way of investing that is Tax Free*
- It allows you to trade on the movement of stocks and shares without using a stockbroker, therefore you do not have to pay commissions or fees
What is Spread Betting - FTSE 100 Dec Example
On a spread betting company website - you may see the following information:
| Expiry
|
Market Description
|
Sell
|
Buy
|
| Dec
|
FTSE 100 - Dec
|
6370
|
6380
|
ie a FTSE December contract is priced at 6370 - 6380 points. You could:
- Buy at 6380 points if you thought that the FTSE 100 index would finish above 6380 points on 15 December (Expiry date of the contract), or
- Sell at 6370 points if you thought the index would finish below 6370 on 15 December.
Note that you don't have to keep a position open until the contract expiry date, you can close out your position earlier.
How do I Spread Bet?
Taking the above example, if you think the FTSE is buoyant and only going up then you would Buy at 6380 for a Stake per Point eg Buy the FTSE at 6370 for £2 per point of movement.
Let's say the market goes up and the FTSE settles at 6398.
Your profit is calculated by taking the difference between the closing level (6398) and the opening price (6380) and multiplying that by your stake.
Profit = (6398 = 6380) x £2 per point stake
= 18 points x £2 per point = £36 profit
However had the FTSE gone down and closed at 6374, you would have lost.
Loss = (6374 - 6380) x £2 per point stake
= -6 points x £2 per point = £12 loss
Financial Spreads » "With FinancialSpreads.com you get all the advantages of Spread Betting as well as commission free CFD Trading on 2,500+ markets, 24 hour trading, professional level charts and..." read
Financial Spreads review.
|
What is Spread Betting - Can I Limit My Risk?
To limit your risk, you can place a Stop Loss when you open a new position (ie when you place a new bet). If the market moves rapidly against you and the market hits your Stop Loss level your bet is closed and your losses are limited. Note that there are different rules with different firms, with some firms you can specify where to put the Stop. Some firms will not guarantee your Stop Loss and may close your bet at a different level. Always check the rules before you trade.
Also see Spread Betting - Stop Losses.
What is Spread Betting - for more information see:
Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading 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 Spread Betting?' by DB, updated 07-May-13
For related pages also see:
Spread Betting, updated 17-May-13
Spread betting for new and experienced traders. In-depth spread betting analysis, daily spread betting views, 400+ spread betting examples, spread betting company reviews, price comparison and...read article: Spread Betting.
Candlestick Charts, updated 15-May-13
A guide to using trading charts: Live Charts, Video Tutorial & Daily Technical Analysis. Plus a look at advanced charts, the basics of moving averages, the pros and cons of using charts and...read article: Candlestick Charts.
Spread Betting UK, updated 15-May-13
UK Spread Betting - a detailed guide to spread betting in the UK. We compare the UK spreads companies, we look at tax-free* spread betting in the UK and we also...read article: Spread Betting UK.
Trading Charts, updated 19-Apr-13
Live Trading Charts plus a guide to using trading charts, the basics of candlestick charts, where to get free trading charts and...read article: Trading Charts.
Spread Betting - Stop Losses, updated 19-Apr-13
Many people highlight the risks of spread betting, of losing thousands of pounds on volatile markets. And they are right. With spreads you can risk winning or losing a sizeable sum on each bet. So how to have the upside without the downside?...read article: Spread Betting - Stop Losses.
Rolling Daily Spread Betting, updated 19-Apr-13
A guide to rolling daily spread betting markets including where to trade, why trade, rolling daily spread betting examples, overnight financing costs and...read article: Rolling Daily Spread Betting.
Spread Betting and Pairs Trading, updated 19-Apr-13
When it comes to spread betting strategies many traders today opt for pairs trading. Imagine that a spread bettor specialises in the financial sector. To engage in pairs trading, that spread bettor would...read article: Spread Betting and Pairs Trading.
What Is Spread Betting?, updated 07-May-13
It is a relatively simple way of allowing you to bet on shares / markets without owning any stocks. It is a cost efficient way of investing that is Tax Free*...read article: What Is Spread Betting?.
Why Spread Bet, updated 07-May-13
There are many good reasons why you should consider spread betting as part of your investment process including: Tax Free Investments*. A wide range of markets. No commissions...read article: Why Spread Bet.
Spread Betting Glossary, updated 22-Dec-11
The answers to: What are Bollinger Bands? What is the Double Witching Day? What is a Differential Market? and more...read article: Spread Betting Glossary.
Spread Betting Definitions, updated 22-Dec-11
The answers to: What is a Notional Trading Requirement? What is an OCO order? What is the Triple Witching Hour? and more...read article: Spread Betting Definitions.
|
|
Q) Average Trading Results?
A) Get free spread betting tips, offers, price updates, important news and more!
|
|