Spread betting is becoming more and more popular among city and day to day traders. Tradefair estimates the number of active spread betting accounts is growing by 30-40% each year, and there are now more than 20 financial platforms offering these services in the UK. Popular platforms include City Index, IG index, World Spreads and Tradefair.
But what exactly is spread betting, and how can you make money from it?
Spread betting involves speculating on the movement of financial markets. You can bet on any type of financial market, including stock exchanges (FTSE, DOW, DAX, NYSE etc), commodities markets, securities, even house prices and government bonds/interest rates.
Unlike traditional fixed odd betting, in spread betting we are betting on leverage and margins. As such, the profits and losses are practically infinate. For example, in spread betting is one of the few types of gambling where you can end up losing far more than your initial deposit on a single trade. This is why itis so risky and you should only bother betting money if you know what you are doing and have plenty of experience and knowledge in the industry.
To place a spread bet, you first need to identify a particular market or stock to wager on. If you think the value of a stock (microsoft for example) will go up in value, than you can wager on that happening. First, you need to phone up your financial broker or place a bet online. You ask for the "bid" price offered by the platform, and if you think the value of the stock will be worth more than this in the future than you can wager on that happening. Because there are no fixed odds, you are wagering money on per points movement. For example, if you wager 10 per point on microsoft stock and it increases 10 points from 150p to 160p in the betting period, than you will make 100 profit. Likewise, you can lose 100 if the price drops 10 points. Investing in stock when you think the value will increase is called "going long" - and you make a profit from the difference in the "bid" (buy) and "offer" (sell) price at the end of the day.
The "spread", is the difference between the "bid" and the "offer" price and is it how thebroker takes a commission. The bid price is always slightlyhigher than the offer price. For example, if the offerprice (market value) is selling at 150p, than the "bid" (buy) price offered by thebroker will be 151p. Thedifference in value is the commission or "spread".
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