Spread Betting

How does it work?

Financial Spread Betting uses the same fundamental trading techniques that are used when trading most traditional assets.

The major difference is that you do not physically take ownership of the underlying asset, you simply ‘bet’ on the direction of the price movement instead.

1. Choosing the instrument

   Most companies offer real-time prices in thousands of markets, which of those you trade is solely your decision. For example, you may wish to take a short term view on an index or have a longer-term view on a share or commodity, you can even do both at the same time. The platforms brokers offer have real-time charts with built-in indicators and analysis to help you decide.

   The only other thing you need to consider when choosing an instrument is the type of bet that you wish to place on that market. The top spred betting companies offer a range of bet options that are available to suit the desired duration of your trade. These range from only a few minutes, to a single day, to 3 months in length, and even one where there is no defined end date.

   Daily Cash Bets- designed for the short term trader and are settled at the end of the day.

   Daily Rolling Cash Bets- these bets do not expire at the end of the day and are automatically ‘rolled over’ to the next trading day (subject to overnight financing charges)

   Daily Rolling Future Bets- these bets do not expire at the end of the day and are automatically ‘rolled over’ to the next trading day (subject to overnight financing rolling charges)

   Quarterly Bets- expire on a set date three months in the future and do not incur financing (or rolling) costs – it is all built into the price, up front.

   It is important to note that a bet can be closed at any time before the bet’s initial expiration date.

2. Choosing the Bet Direction

   If the investor believes the value of an asset is set to rise in the future they would place a ‘buy’ (or ‘up’) bet, this is known, in market terminology, as ‘going long’. Conversely if they feel that the asset price is likely to fall in value, they would enter a ‘Sell’ (or ‘down’) bet, otherwise known as ‘going short’.

   Going Short (or “shorting”) is a major advantage compared with traditional trading. It describes the practice of selling a borrowed asset with the intention of buying it back later at a cheaper rate than at which they initially sold. The short seller is looking for the price of the asset to fall before buying it back at a cheaper price. This concept opens up the possibility of making profit when the price of an asset is falling in value.

3. Choosing the Stake

   When placing your bet you will be asked the stake/amount you would like for the bet. For every point that the asset moves in the correct direction the investor will profit by the stake amount. So as an example, if you had placed a buy bet at £1 per point and the asset value rose by 10 points the bet would be worth £10. It really is that simple. Obviously, if the market moves in the other direction, then those profits turn into losses.

   The stake amount is an indication of the level of risk you are prepared to take on that trade. The larger the value of the stake amount, the greater the potential reward, however, there is clearly also the potential for larger losses.