How spread betting works - Spread Betting

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How spread betting works

Written by Gary Howes

Thursday, 12 August 2010 15:23

Spread betting for the private investor is in principle a simple affair.

All you have to do is predict whether a particular stock, security, or market, anywhere in the world, will go up or down over your chosen timeframe. If you’re right, you win; but if you are wrong, you lose.

When buying and selling the underlying shares, you are quoted two prices, for example:

Anglo American:

139p This is the amount per share you receive if you sell

140p This is the amount per share you pay if you buy

The principle is the same with Spread betting.

You are quoted two prices and you buy at the higher price and sell at the lower price.

Your objective is to correctly predict which way the price will move, so that the price you receive when selling is HIGHER than the price you pay when buying – the difference between the two prices is used to calculate your profit or loss.

The difference between normal share investing and spread betting is that instead of buying a quantity of shares you simply decide how much money you would like to bet per point.

You might decide that Anglo American is due to rise and choose to buy at R10 per point.

This means that when you close your bet you would receive £10 for every point that the Vodafone price rises above the price you paid; similarly you would pay £10 for every point that the price falls below.

Price goes up 10p to 150c

Opening purchase value 140c
Closing sale value 150c
Points moved 10 points
Profit per point R10
Profit R100

Price goes down 10p to 130c

Opening purchase value 140c
Closing sale value 130c
Points moved 10 points
Loss per point R10
Loss R100

Last Updated on Thursday, 12 August 2010 15:25

Spread Betting Lessons - Cut out the emotion!

Oh, and also a lesson why the Stop Loss is your Friend !

Spread betting at a glance

Spread betting is a financial product that allows retail and professional investors access to the widest possible number and types of exchange traded instruments.

The spread betting company that you trade through is the market maker, the trader does not actually take ownership of any underlying product. Hence, most jurisdictions do not charge stamp duty on any gains.

The notion that you don't actually own the product ensures spread betting platforms are able to almost instantaneously execute orders on behalf of their client.

Spread betting is a leverage product, your money is able to realise you impressive gains as your earnings come in multiples of the actual change in the underlying product that you are trading.

This is of course where spread betting can also go spectacularly wrong. Losses can be huge, therefore we advise those that are spread betting, or are looking to go into spread betting, to enter each trade with a well thought out strategy. This also means setting a pre-determined stop loss so that losses are cut at a manageable level.

This website is here to offer more insight into this fascinating trading instrument.

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Spread Betting Lessons - Cut out the emotion!

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Spread betting at a glance