Spread Betting Guide

Spread Betting Guide

Comprehensive guide to financial spread betting from http://www.financial-spread-betting.com/

Copyright © 2008 Financial-Spread-Betting.com All rights reserved.Copyright © 2008 Financial-Spread-Betting.com All rights reserved.

What is spread betting?


Financial spread betting lets you back your trading judgement without having to buy the underlying instrument or product you want to trade


How Does It Work?


Like any other bet, a spread bet is a bet on an unknown outcome made at odds set by someone else – in this case, a financial spread betting company.


The financial spread betting company takes an instrument and quotes two prices; let’s say, 101 – 103.


These two prices, which they call a spread, are effectively a bid and offer price. The offer price (103) is the price you can buy at, the bid price (101) is the price you can sell at.


The spread represents a prediction of a future outcome. And because spread bets have an expirey date, it’s a prediction of a future outcome within a set time frame


What you need to decide is whether to buy or sell the financial spread betting company’s prediction of the future outcome.


The spread is simply a two-way price quoted for a given market. A spread bettor buys at one end of the spread (the offer price) and sells at the other (the bid price)


If the spread has moved far enough in the right direction between the time you buy and sell (or sell and buy, as you may bet on either direction), you make money.


If it moves in the wrong direction, you lose!


The size of the initial stake determines how much profit or loss is made per unit move.


Spread Betting is illegal in the US, but in the UK and under current tax laws, spread betting profits are tax free.


Give Me An Example


Let’s say a spread betting provider is quoting the price of a Company X stocks at:

104-112


You pick a stake of £5 and choose to ‘buy’ this stock at 112 (by buying you’re betting that the stock will increase in value)


A couple of days later, on the back of excellent profit reports, Company X shares rise in value, they are now quoted at:120 - 128


At this point you might choose to “take your profit” and the way you do it is by making a £5 stake “sell” bet at 120.


You’re profit is calculated as:Bought at: 112Sold at: 120Difference: 8Stake: £5Profit: £40 (8 x £5 stake)


Spread Betting Advantages

• Financial Spread Betting profits are tax-free

• Stops and limit orders available as in a conventional market.

• Access to a wide range of markets through a single account.


Spread Betting Advantages

• No commission to pay on transactions (although this is effectively built into the spread)

• Trade on margin (requires less capital than trading underlying.)

• You can go ‘short’ on falling markets.


Spread Betting Disadvantages

• The price quoted by a financial spread betting company may differ from the price of the underlying.

• No depth of market or time & sales information.

• Hidden costs, such as the overnight financing charge for holding long positions


Spread Betting Risks

•You can lose more than your initial deposit or capital

• Highly leveraged nature of spread betting means profits and losses are magnified

• Trader doesn’t own shares tradedThis means that he does not receive any of the benefits he might expect with share ownership, such as dividends. & does not receive voting rights or dividends.


Can I make money spread betting?


Simply put the answer is YES. Financial Spread Betting is very lucrative if you get it right, but it’s also very costly if you get it wrong.


How can I get started in financial spread betting?


If you want to give financial spread betting a try, check out http://www.financial-spread-betting.com/

For a comparison of the top spread betting companies.


How Do I Improve My Knowledge?


For more information on financial spread betting, visit:

http://www.financial-spread-betting.com/


Good luck!

Economy & Finance

Spread Betting Guide