Spread betting is a way of speculating on markets. There are currently over one million people with spread betting accounts in the UK and this number seems set to rise further as success stories make their way into the public domain. Here’s our definitive guide to spread betting so you can decide whether you think it’s right for you.
What is Spread Betting?
Spread betting is generally considered to be a flexible and cost-effective way to trade in the markets. When you’re spread betting you’re speculating on the price movements of a financial market or a commodity. In spread betting you do not actually own the product in question, you’re merely speculating on its price. For this reason, spread betting saves you the inconveniences and limitations associated with physical ownership.
How to Bet
You bet on the product at a certain price. From here, the price of the product will go up and down in the market. For every point that the product moves in your favour by you will gain multiples of whatever stakes you placed on the bet. For every point the product moves against you, however, you’ll lose multiples of your stake. This means that both winnings and losses are virtually limitless if you do not close your position and end the bet.
The potential gains and losses that you make when spread betting are subject to spread betting costs. Make sure you fully understand these before you place your bet.
You can go ‘Long’ or ‘Short’
If you think that the price of a commodity will increase then you ‘buy it’, aiming to sell it back at a higher value when you close the position. In spread betting, this is referred to as ‘going long’.
In contrast, ‘going short’ is the exact opposite. Here you ‘sell’ the product with the aim of buying it back at a much lower price. Always remember, however, that you do not own the product that you’re buying or selling. This means you can spread your bets on rising and falling prices.
Using the Margin
Betting on a margin allows you to maximise your profits. However, in addition, it also maximises any losses that may arise. By betting on a margin you only have to deposit a small amount of the overall value of the bet you want to place.
Betting on a margin is always a high risk and high reward business so make sure you fully understand the risks before you bet.
How to Manage Potential Risk
There are various ways that you can limit risk when you’re spread betting. Stop loss orders allow you to set a price that you’re not willing to go beyond, thus limiting your losses. As well as this, be sure to invest carefully, monitoring the markets closely and trying to establish patterns.
That’s our definitive guide to spread betting. It isn’t for everyone but for some, it is right up their street. If you are going to spread bet, make sure you’re fully clued up before you bet and ensure that you’re fully aware of all the risks involved.