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Spread betting is a way of making money by speculating on the price movement of financial markets. The degree of right or wrong in your prediction determines the profitability or losses.

Spread betting is a financial product leveraged by trading a small amount of deposit for a much larger stake in the market. Your investments can gain or end up losing the initial deposit. Nevertheless, spread betting is flexible, you can easily take positions on over 15000 markets by understanding the risks and deploying commensurate strategies.

Therefore spread betting allows you to bet on the price movements of currencies, indices, stocks, and bonds.

How does it work?

The spread is essentially the difference between bid price and the asking price. The bid price is what a broker quotes when buying while asking price is the price a broker quotes when selling a stock.

If you expect the market to rise sometime in the future you open your spread bet at buying price and vice versa if you think the market will fall you open at the selling price. There is profitability if the markets move favourably to you while you incur losses when the market moves against you.

You can risk any amount like £12 per point. For example, if you think the price at FTSE 100 index will increase, then place a bet at the asking price of 7,442. Every point increase or decrease will translate to £12 profit or loss. Thus if the market rises to 7450 an increase in 8 points means you got a profit of £96 (£12*8 points).

Steps of spread betting

  • Pick the instrument you want to trade – there are plenty of instruments to trade including but not limited to shares, currencies, indices etc.
  • Select whether you want to sell or buy,
  • Select the stake size – profits or losses depends on the number of points the trade moves in either direction,
  • Then place your trade – buy or sell the market order.

Spread betting strategies

First of all, study the markets and adopt a strategy before engaging in it. The best strategies include trend following, Range trading, Reversal trading, News trading and Breakout trading.

Trend following - Trend following strategy is popular with traders. When the price is trending upwards the charts shows highs and higher lows. Many traders adopt an optimistic attitude and assume a buy position. Conversely, the traders enter a short position if the market shows a downward trend of lower highs and lower costs.

Range trading- It involves identifying the resistance and support levels and taking a short position at the resistance and long position at the support level. This strategy is suitable for new traders since they can place stop - loss orders beyond the support and resistance price level.

Reversal trading- This involves looking for over extended trends that are ready for reversal after reaching the limit.

News trading - This strategy doesn’t rely on technical analysis it just requires ingenuity in interpreting and understanding news, macroeconomic data, financial results and the economic policy. It’s a highly profitable venture since data releases or news headlines dictates the price.

Breakout trading – This strategy involves taking a buy position if the trends break the resistance level, - it’s a signal of an upward trend. Moreover, taking a selling position if it breaks the support level. Its key benefit is that the resistance and support triggers will aid the trend to carry on.

Online trading made easy

Secondly, online platforms have made spread betting easily accessible. For example, you can access 'CMC Markets' platforms through mobile apps. The intuitive interfaces are available for iPad, iPhone and Android-running devices giving you the ability of trading wherever you are.

Benefits of spread betting

  • There are no taxes imposed on profits like stamp duty, or capital gains.
  • You can easily short the market by betting the direction the asset price will move.
  • Availability of thousands of markets to choose from gives you a big opportunity to trade and make profits.
  • There are no commissions to pay, unlike equity CFDs.
  • Spread betting is a leveraged product hence you don’t have to put the full value in order to trade.
  • The markets are 24 hours hence no matter where you are as long as you can access the online platforms you can trade.

Finally, the most important thing about spread betting is understanding the risks and employing the right strategies that work for you.

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