What is Financial Spread Betting?
Financial spread betting is a great alternative to conventional trading and provides you with the opportunity to speculate on the fluctuations of global financial instruments, such as exchange rates and commodities, without having to pay stamp duty or capital gains tax.
Another advantage of financial betting is that you only pay a portion of the actual value of the trade up front, with the rest covered by a broker. The amount of money that you need to open the trade is known as ‘margin’.
How Spread Betting Works
Learning how to spread bet is simple.
With each market you are presented with a ‘buy’ and a ‘sell’ price, either side of the underlying market value of the asset.
The difference between these two prices is referred to as the ‘spread’. Financial markets are measured in points and you have to ‘bet’ a certain amount of money per point that you think the market price will increase (going long) or decrease (going short) by. The amount you win or lose depends on the difference between the prices you bought and sold at, multiplied by the amount per point you had ‘bet’.
How to spread bet – An example
For example, you want to bet on the direction of the Wall Street Market and place a stake of £5 per point that you think Wall Street will increase by.
The spread betting company will give you a ‘spread’, for example 9760 – 9770; the former being the selling price and the latter being the buying price.
If your predictions were to be correct and, for example, prices increased to 9860 – 9870, and you were to sell at 9860, then you would realise a profit point of:
9860 (price sold) minus 9770 (price bought), which equals 90 points. As you placed a bet of £5 per point, your return would be £450.