Financial spread betting is a cost effective, tax free* alternative to traditional share trading. But unlike traditional share trading, investors can easily trade a wide range of instruments such as oil, gold, dollars, the FTSE, international shares like Google and Nokia, and many, many more. And unlike traditional share trading, it is possible to make a profit in both rising and falling markets. Spread betting can be a very powerful tool when used wisely, and this guide aims to introduce you to financial spread betting and help you get started.
A financial spread bet allows an investor to bet on whether the price for a given financial instrument is likely to go up in value (strengthen) or go down in value (weaken). Just like traditional share trading, your profit or loss is the difference between the price at which you buy and the price at which you sell. Buy low and sell high to make money.
Unlike traditional share dealing where you purchase ownership of the company, spread betting means that investors don’t own the physical share, but bet solely on price movements. This gives investors the opportunity to profit whether the markets are rising or falling. If you get the market direction right then you make profits but if you get the market direction wrong it means you make losses.
In the stockmarket, when you want to deal in traditional shares, you go to a stockbroker and he will quote you two prices, the price you can buy at (the ‘offer’ price) and the price you can sell at (the ‘bid’ price). In spread betting the principle is exactly the same, two quoted prices, bid and offer.
If you believe the share (or index, commodity or other market) will go up, you buy at the offer price - the higher of the two prices quoted. If you believe the share is going to go down your bet will start at the bid price - the lower of the two figures.
When you place your bet you will be asked to say how much you want to bet on a per point or per penny basis. For example, if you were betting on a UK share at £10 per point you stand to win, or lose, £10 for each penny the UK share price changes. This bet stands until you choose to close it.
*Tax laws can change
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