What Is Financial Spread Betting?
********************
Spread Betting is a tool that enables traders to profit from both up and down moves on a wide variety of financial markets, whether stock indexes, individual shares, currencies, bonds, and commodities such as gold or crude oil. What differentiates spread betting from other types of financial speculation is that ALL profits are 100% Tax-Free.
Spread Betting differs from fixed odds betting in that;
Spread Betting differs from fixed odds betting in that;
you don't risk a certain amount per bet,
and there is no fixed profit or loss .
Spread Betting is Different From a High Street Bookmaker
****************************
For example the high street bookmaker may well offer you 10-1 on a certain horse, if you place £1 at those odds and win, you'll receive £10 profit (plus your stake back). If the bet loses then all you will have lost is the £1 stake.
But the profit and loss on a financial spread bet is always open because you're betting a stake, usually Pounds per point, on the direction of the market. For example, you may well be expecting the FTSE 100 index to rise and so decide to buy it at £1 a point using a spread bet.
If you bought the FTSE 100 index at 4200 risking £1 a point and then sold it when it rallied 50 points to 4250, your profit would be £50 (50 points x £1), and this is 100% free from capital gains tax.
But if the index moved lower and you subsequently sold your bet at 4175 to take a loss, then you'd lose £25 (-25 points x £1). And this is the difference between fixed odds betting and spread betting, your ultimate profit and loss with this style of betting is never known until you liquidate the bet.
Making Money From Falling Prices
Using spread bets a trader can also bet on a downward market by what is called selling short (for more information on short selling using spread bets click here). If you were bearish towards the FTSE 100 expecting lower prices in the future, then you could sell the index short at say the current market price of 4200, and then cover this bet or buy it back at 4100.
If your stake was £1 a point then your profit would be a tax-free £100 (100 points x £1). Of course your view may well be incorrect and the FTSE 100 rises, and so you decide to take your loss by buying back your down-bet or short trade at 4225, so losing 25 points multiplied by your £1 stake, a loss of £25.
Spread Betting is Flexible
Spread betting is very flexible and the Spread Bet brokers offer many markets and products to trade, all following the same principle of betting pounds per point. A further advantage to spread betting is that there are no commissions and if you're dealing on UK shares, NO Stamp Duty.
For the beginner the inner workings of spread betting can seem complicated to start with, but when you know how spread betting works you will gain the necessary confidence to trade in this fast moving and exciting business.
FOR THE SMARTEST WAY TO TRADE THE MARKET CLICK ON THE LINK BELOW:
******************************
If you want to learn about spread betting then you must understand short selling. This is imperative because the whole point about speculation using spread bets is that they offer you total flexibility enabling you to take advantage of whatever way the markets move.
Forget About The Financial Markets - Look at Cricket
The concept of short selling is actually very simple to understand, but it can take some time to sink in because it is the opposite way of thinking to how most people have conducted themselves in the financial markets.
One of the best ways to understand short selling is to use cricket as an example.
England versus India
You are watching a cricket match with a friend from India
He boldly states that he fancies his Indian compatriots to score at least 400 runs
You disagree and so decide to have a bet
You wager £20 on the fact that India will not make 400 runs during their innings
Therefore if the Indians score under 400 you'll win £20 from your friend
If India scores over 400 runs you'll lose £20
Adding More Spice to the Wager
But in the financial markets deals are never executed for a fixed wager as in the example above. Let's expand on the cricket bet.
You and your friend both decide to have the same bet, you forecasting that India will score under 400 runs, your friend over 400 runs
Instead of the flat £20 wager you now both bet £1 per run
Meaning that for every run India scores under 400 you will profit by £1 multiplied by that number
And conversely for every run that is scored over 400 you will lose £1 multiplied by the number
You have effectively sold Indian runs short at 400
Three possible outcomes for your short trade:
1. A Winning trade
India score 325 runs
400 (the level at which you went short) - 325 (final score) = 75 runs
75 runs x £1 (per run) = £75 profit
2. A Losing Trade
India score 450 runs
400 (the level at which you went short) - 450 (final score) = -50 runs
-50 runs x £1 (per run) = -£50 loss
3. Breakeven Trade
India score 400 runs
400 (the level at which you went short) - 400 (final score) = 0 runs
0 x £1 = no profit/loss
Now translate this cricket example into the stockmarket. Instead of selling Indian cricket runs at 400, sell short Marks & Spencers at £3.50. If M&S declines then the short trade will make money, but it will lose money if the share price moves higher. The profit or loss will simply be multiplied by your stake (pounds per point).
If you want to learn about spread betting then you must understand short selling. This is imperative because the whole point about speculation using spread bets is that they offer you total flexibility enabling you to take advantage of whatever way the markets move.
Forget About The Financial Markets - Look at Cricket
The concept of short selling is actually very simple to understand, but it can take some time to sink in because it is the opposite way of thinking to how most people have conducted themselves in the financial markets.
One of the best ways to understand short selling is to use cricket as an example.
England versus India
You are watching a cricket match with a friend from India
He boldly states that he fancies his Indian compatriots to score at least 400 runs
You disagree and so decide to have a bet
You wager £20 on the fact that India will not make 400 runs during their innings
Therefore if the Indians score under 400 you'll win £20 from your friend
If India scores over 400 runs you'll lose £20
Adding More Spice to the Wager
But in the financial markets deals are never executed for a fixed wager as in the example above. Let's expand on the cricket bet.
You and your friend both decide to have the same bet, you forecasting that India will score under 400 runs, your friend over 400 runs
Instead of the flat £20 wager you now both bet £1 per run
Meaning that for every run India scores under 400 you will profit by £1 multiplied by that number
And conversely for every run that is scored over 400 you will lose £1 multiplied by the number
You have effectively sold Indian runs short at 400
Three possible outcomes for your short trade:
1. A Winning trade
India score 325 runs
400 (the level at which you went short) - 325 (final score) = 75 runs
75 runs x £1 (per run) = £75 profit
2. A Losing Trade
India score 450 runs
400 (the level at which you went short) - 450 (final score) = -50 runs
-50 runs x £1 (per run) = -£50 loss
3. Breakeven Trade
India score 400 runs
400 (the level at which you went short) - 400 (final score) = 0 runs
0 x £1 = no profit/loss
Now translate this cricket example into the stockmarket. Instead of selling Indian cricket runs at 400, sell short Marks & Spencers at £3.50. If M&S declines then the short trade will make money, but it will lose money if the share price moves higher. The profit or loss will simply be multiplied by your stake (pounds per point).
