In the UK the largest part of the official Spread Betting Market is with financial instruments. The most significant Spread Betting companies do most of their business with the financial markets; spread betting with sports is not as popular.
When dealing in traditional shares in the stock market you go to the stock broker to trade and get quoted two prices. If you are selling shares you will get quoted the lowest price out of the two, this is called the ‘bid price’ and if you go to the stock broker to buy shares you will get the higher of the two quotes: the ‘offer price’. If you take away the bid price from the offer price you will end up with the ‘spread’ as it’s the difference between the two quotes.
This method also uses these two prices: bid and offer, so the principle is virtually the same. So, what the trader does is buy the share at the offer price, the higher of the two quotes, if you believe it will go up or buy at the lower quote, the bid price, if you think that the value of the share is going to go down.
In the UK bets are placed ‘per-point’ or ‘per-penny’ the stock broker will ask you how much you want to place so, if you bet £100 per penny you will receive or lose £100 for each pence that the UK share fluctuates: if it falls three pence you will lose £300 or if it rises three pence you stand to win £300.
A £100 bet my not seem like a lot but bear in mind that stocks and shares can unexpectedly slump or soar which will leave you with a very large profit or a very large loss. So, if you are a beginner start off small whilst you are learning the ropes and then build up with experience.
The best stays active until you go back to the broker and ask him to close it by taking whichever price is available. If you want to limit the damage in case of serious loss you can utilise a stop loss, when the share gets to a certain price your bet is automatically closed.
A significant advantage of spread betting is that at the moment it is free off capital gains tax so if you think you can get your head around it spread betting is hardly different to using a normal broker and can be very rewarding, once you get into it you will probably wonder why you haven’t been involved in it for ages.
To round off here are some of the basic points of spread betting:
You buy at one end of the spread and sell at the opposite, if the spread has shifted the way you anticipated you win, if it has move in a direction you didn’t expect you stand to make money.
The size of you bet determines how much you receive per shift in point.
You are not buying shares, therefore you never own them, you are simply betting on the spread.
As you can bet on a market collapsing you can make money from soars or slumps.