A Consumer Guide to Spread Betting

What is spread betting? Traditional betting involves placing a bet on a “win or lose” outcome such as whether a particular team wins a football match or whether snow falls on Christmas Day. Spread betting differs in that the bet is placed on whether the outcome is above or below a spread of values. Financial betting using this method involves placing bets on whether the stock or currency in question is going to increase or decrease in value, and is an increasingly popular application of the method. The spread of a stock, index or currency is the point’s difference between the bid (sell) price and the offer (buy) price. You bet a certain amount per point, placing a bet at the buy price if you think the index will rise and at the sell price if you think it will fall. Your bet runs for as long as you want it to, and the difference between the price at which you placed your bet and the final price determines your result. If the price has moved in the direction you thought you make a profit, and if it moves in the opposite direction you make a loss.

Advantages of spread betting

As a trader you can decide the size of the bet you want to place; you are not limited by a fixed contract size. Profits are exempt from capital gains and stamp tax in the UK as spread betting is classed as gambling. You do not have to have thousands of pounds to invest and some financial spread betting companies will allow you to start an account with as little as £50.

Disadvantages of spread betting

Risk, risk and risk. Spread betting is a highly risky activity; it is designated as gambling for a reason. In the financial market stock and currencies change value rapidly and unpredictably based on local and world events. Potential gains may be unlimited, but this means that potential losses are also unlimited. Everyone who embarks upon financial betting will make losing bets, and it is by no means a get-rich-quick scheme. Not everybody will be happy with the level of risk and uncertainty involved.

How to get started with spread betting

There are a few key points to consider before starting to place spread bets. First you need to ensure you have sufficient capital. It is recommended that you risk a maximum of 5% of your total account at any one time to allow for a potential string of losses. You need to register with a spread betting company, ideally with tight spreads as you will be charged less per bet for a narrow spread than a wide spread. A good company will also provide you with a demonstration account so you can practise placing spread bets without risking your money. It is strongly advised that you spend some time studying the basics of financial betting and practise before starting to bet in earnest, learning important skills including when to close your bets and how large to set your stops to limit losses. Successful spread betters spend considerable time analysing charts and market trends to develop strategies for identifying profitable trades. Although spread betting is simple in principle and can be financially lucrative, it is a hugely risky endeavour and you are strongly advised to research thoroughly before starting.