Spread Betting

Guide: General Information

So what is a spread bet

In the stockmarket, when you want to deal in traditional shares, you go to a stockbroker and he will quote you two prices.

The lower of the two prices, which is the one you will get if you are selling shares, is called the bid price.

The higher quoted price is what you will have to pay if you are buying shares, and is the offer price. The difference between the two prices is called the 'Spread'.

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 wager on a per-point or per penny. For example if you were betting on a UK share in say "£10" you stand to win, or lose, £10 for each penny the UK share price changes.

Top tip for beginners: £10 may not sound a lot but always remember you stand to make or lose this for every penny a stock may change. If a share suddenly soars or slumps on an announcement, you will soon be sitting on a large gain or a large loss. If you are new to this game, start small and build from there.

This bet stands until you choose to close it - by for example going back to your spread betting broker and taking the latest bid (selling) or offer (buying) price available. Another handy tip is that you can use a stop loss, where you don't have to watch the market every second, but can set-up a price at which you automatically close out the bet.

Still a bit confused? We realise that the concept may be a bit difficult to get your head around but a few simple examples will help.

The reality is that if you understand what you are doing, spread betting is no scarier than trading through a normal broker. And once you do 'get' spread betting you will wonder why you didn't think of using it sooner.

One of the major features of spread-betting is that any gains you make are currently free of capital gains tax.

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