What is Spread Betting?

This form of investment is similar to gambling and can be applied to financial markets or sporting events/competitions. The spread betting firm will quote a spread in a share or index price, score or time. The investor can then either buy or sell the upper or lower limit respectively at a stake per point move (tick value). For example imagine looking at the spread betting on the close of the FTSE 100 on a particular day. Firm Quotes a spread of 6535-6540 Investor A believes the index will close above 6540. So Investor A buys at 6540 and places a tick value of £10 per point. Investor B believes the index will close below 6535. Investor B will therefore sell at 6535 and also places a tick value of £10 per point. The market closes at 6552. In this scenario Investor A will make 12 x tick value, ie £120. However Investor B will have lost 17 x tick value being £170.

Top Tips:

  1. Firms will change the spread continuously during the day so make sure you search for the best deal as they will vary.
  2. Changes in the spread allow for profits or losses to be fixed by hedging out at certain points during the day.
  3. There are no brokerage costs, commission charges and all gains are Tax free as technically this is gambling.
  4. Use Stop Orders to minimise any losses and thereby lower the risk.
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