What is Spread Betting?
Spread betting is the betting on whether the value of a financial asset such as a stock or currency will rise or fall. The spread betting company will quote two prices, the bid and the offer price (the spread) and the investor will bet on whether the price of the asset will be lower or higher than the offer.
With traditional investments, you buy the share or asset, and then sell it later, hopefully for a profit. With spread betting, you don’t actually buy anything, you simply bet on what the price of the asset will do.
What is a Spread?
The spread is the difference between the bid price and the offer price. The offer is the price that you can buy at, and the bid is the price you can sell at. If a broker offers a tight spread, it is cheaper to trade with them.
The Advantages of Spread Betting
Spread betting has many advantages over financial trading, the most important of which is the fact that no stamp duty is payable, and no capital gains tax is payable on any profits made. There are no commission or fees paid to the broker. The profit margins are included in the spreads, so the lower they are the better.
One of the great advantages to spread betting is that it doesn’t have to be a rising market to make you money, and profits are, in theory, limitless.
You can make small bets even when traditional markets are closed.
You can also limit your risk easily. A ‘stop loss’ is often automatically generated for each position you open, so the financial risk is reduced. You can amend this and move it closer or further away from your level of entry.
The Disadvantages of Spread Betting
The main disadvantages of spread betting is that is carries a high risk. Although you can limit it, it is easy to lose a lot. You should therefore make sure you understand everything before you start, and that you are comfortable with this level of risk.
How to Spread Bet
Spread betting is normally used to speculate on the future direction of market prices, when done well with minimal risks you can profit notwithstanding the rise or fall of the underlying market prices.
If have every reason to believe that a market will certainly rise in the near future, make a move and buy and your profits will increase in line with any increase in that price. In the same way, if you expect a market to fall, you can sell (go short) and your profits will rise in line with any fall with that price. You should also know that your losses will rise if the market moves against you, especially when you make a wrong move.
If you are ready to take your chances on spread betting, first you need to open an account with a spread betting company; SpreadCo can help. You then choose your trading platform and fund your account. You can fund your account through card, bank transfer or Skrill. Decide what you want to trade – shares, indices, currencies, commodities – the options are all open.
The best way to understand spread betting better before you fully make a real move is to run through an examples. If you are new to spread betting I highly recommend that you open an online demo account and read most of the instructions on placing a bet on any platform before you make a move. Practice first with a demo to know how it works, when to make a move and at what point to buy or sell.