What is Spread Betting?

What is Spread Betting?

Financial spread betting is a popular form of trading in the UK that involves trading the financial markets. You can utilize financial spread betting as a technique to trade stocks and shares in an identical way to other standard forms of derivatives, such as Contracts for Difference (CFDs). You will also discover that many brokers support both financial spreadbetting and CFDs on their trading platforms.

Understanding the Bid-Offer Price:

When you execute a spread bet, you’ll be quoted a bid-offer price. The difference between the two prices is called the “spread” and is how brokers earn their commission. For example, imagine we’re spread betting on gold and the bid-offer price is $1370.2-$1370.7. This means we can trade a fixed amount of money per point movement (usually a minimum movement position of $0.1) at $1370.7 and sell at $1370.2. The spread would be $0.5. You can learn more about how the spread works in our next lesson here.

how-to-spread-bet-web(1)

You can use spread bets to enable you to execute a position based on an underlying financial asset without the need to physically own any shares in the associated security. This form of speculating is regarded as a derivative since spread bets derive their values by basing them on those of their underlying assets.

These key features of spread betting imply that you can trade them by simply evaluating whether the price of an asset will move upwards or downwards. Spread betting is not just restricted to stocks and shares but can also be utilize to trade a diverse spectrum of assets, including indices, currencies and commodities. In addition, this form of investing extends to cover other pursuits, such as betting on sports events and government elections, etc.

spread-betting-platform-715x640

The Basic Concepts of Spread Betting

If you intend to use spread betting to help you trade the financial markets, then there are a number of basic concepts that you need to appreciate in order to do so successfully.

You will need to base your spread betting activities on the primary fact that the price of an asset will either climb in value or drop. Consequently, if you have assessed that a security will appreciate within a specified time-frame, then you will need to buy it at that moment in time with the intent of selling it later at a profit. This process is termed ‘trading long’.

Alternatively, if you have evaluated that an asset will decline in value by the end of a predetermined time-frame then you will need to sell it now with the intent of buying it later to record a profit. This process is termed ‘trading short’.

How to Make Profits from Spread Betting

Essentially, spread betting allows you to gamble on the future performance of an asset or event. The profit that you will collect, if successful, will be dependent on the accuracy of your prediction as opposed to a simplistic ‘win-or-lose’ proposition like binary options.

The main advantage of spread betting in the UK is that all profits derived from spread betting are 100% tax-free and exempt from Stamp Duty. This is why spread betting is so popular amongst traders in the UK. You can learn more about the tax-free status of spread betting in this article here.

The Risks of Spread Betting

You must appreciate as a top priority that spread betting possesses higher risk levels compared to other standard forms of trading. Consequently, as profits and losses can be orders of magnitude greater than the amount deposited per trade, you are well advised to adopt caution by never risking more than you can afford to lose.

It is a legal requirement set by the FCA that all spread betting companies must make customers understand of the large risks generated from spread betting.

In order to minimize your risk exposure, you can negotiate with your broker to set stop-losses which will automatically close your bet should you discover that price is advancing against your position.

WordPress database error: [Table 'wp_investooprod.wp_icl_string_packages' doesn't exist]
SELECT CONCAT(kind_slug, '-', name) FROM wp_icl_string_packages /* From [www.investoo.com/an-introduction-to-spread-betting/] in [/nas/content/live/investooprod/wp-content/plugins/wpml-string-translation/classes/package/class-domains.php:34] */

Comments are closed.