What is Spread Betting and How to Do It?
Financial spread betting is a product that allows you to bet on price movements in hundreds of financial markets including FX, indices, shares, metals, commodities and treasuries, without having to physically buy the product.
It is, in short, a bet on the future movement of an underlying instrument (e.g. FX). So, if you believe that the underlying instrument is going to rise in value you place a buy bet, if you think it will fall you place a sell bet.
As with FX, the value of each underlying instrument is quoted as a bid/offer spread (the difference in the price at which you can buy or sell the instrument). Spread betting lets you place a bet of any value against market movement in any direction, measured in £s per point.
Therefore, when the market moves one point, you will make or lose the number of £s per point you traded. For example, if you trade £1pp when the US30 moves from 17000-17001, you will make or lose £1. You can “bet” on multiples (and fractions) of £s per point e.g. £0.10, £1.50, £2, £5, £10 per point – but remember that this can significantly increase potential losses, as well as profits.
To close a spread bet, you place the opposite bet in the same instrument at the same value per point. (For a “buy” bet you sell at the current price and for a “sell” bet you buy at the current price).
Your profit (or loss) is the difference – spread – between the opening bet and closing bet, multiplied by the value per point of your bet.