Spread Betting Basics

Spread betting is the innovative way to trade financial markets from a single platform without having to invest a fortune. Over the past ten years spread betting has grown to become one of the most popular ways for traders to speculate on price movements of financial markets as well as the outcomes of multiple sports markets. Financial spread betting works by creating a derivative market of each underlying asset which tracks and simulates the real market prices. The reason why so many traders prefer to spread bet rather than trade stocks in the traditional way is it’s simplicity as well as the fact that a spread better never physically owns any of the stock or currency that they are betting on.

The Freedom of Spread Betting

This form of financial speculation offers complete flexibility to traders and speculators. Not only are all financial markets, ranging from stocks, commodities, currencies and indices available to trade on one platform and through one broker, but a spread betting account can be set up in minutes and with very little deposit required. Traditionally, speculating on price movements in a currency pair would have required a trader to invest a significant amount of money into the market in order to purchase a bulk value of currency.

Placing a spread bet is simple; it works by allowing a trader to simply lay a bet of a fixed value on the incremental movements of the market price. Prices are quoted with a both a higher and lower entry either side of the actual market price. These are the buy and sell prices and the difference between these prices creates the spread. Bets are calculated in points and placed using either the buy or sell price, making profits and losses incredibly easy to calculate. For example, if you believe that the value of the Euro will rise against the US dollar, a bet of £10 per point can be placed long in the market. If the Euro moves 15 points higher against the US dollar (each point being a decimal point of the actual price move) then the bet increases in value to £150. Given that financial markets can move several hundred points each day there are many opportunities for spread betting to result in very large profits.

Choice and Flexibility

Spread betting offers far more choice and flexibility than traditional forms of trading. Most brokers provide for a large number of stocks from European, US and Asian markets. For traders looking to make the transition from day trading stocks, spread betting provides a great alternative. Rather than paying expensive commissions for multiple trades throughout the day spread betting simplifies this without the added risk of not being able to sell on the stock. Instead of also having to purchase a large enough amount of stock on margin to make a reasonable profit from price movements, the benefits of spread betting are that you simply decide how much you are willing to win or lose based on the amount-per-point of the bet.

Commodity Spread Betting

Spread betting brokers also provide easy-access markets for the major commodities, including oil, gold and soft commodities. Commodities trading was previously seen as the exclusive asset for those with deep pockets and often undertaken by professional and institutional traders. Spread betting has revolutionised this by allowing any trader to place bets on the price movements of these commodities. Similarly, a large range of currency pairs are provided by brokers allowing 24-hour access to spread betting across the major, minor and exotic currencies of the world. The real advantage of spread trading is the fact that all of these markets are found within a single online platform; often requiring a deposit of as little as £50 and providing state-of-the-art and professional charting software free of charge.

Tax Breaks

Another major incentive for people to spread trade as opposed to using traditional forms of trading are that, in the UK, spread betting falls under the category of gambling revenue. Earnings made from spread betting are therefore tax free and not subject to require any percentage deductions by the UK revenue services. Although spread betting is categorised alongside gambling it is certainly distinct from pure gambling and many spread betters consistently make high profits from their analytical skill as market speculators. These skills are not only fairly straightforward to learn but they are also highly accessible on the web with many websites and forums providing the basics of how to technically analyse the markets and spot the same trading setups that the professionals see. With some practice these skills can provide even the newest spread betters with the tools to bet profitably.

Remember There Are Risks

Whilst spread betting can be highly profitable and prove a great way to make a second income or professional living, it is worth remembering that it is based on speculation and carries the risks associated with this. Many spread betting brokers offer very effective ways for traders to limit their losses and good information on managing risk to increase your chances of success are also available on many websites. Risk management is key to becoming a profitable spread trader and one of the most straightforward ways to do this is to use stop-losses in your trading and not trade beyond your means. Stop losses can be placed anywhere in the market before and during a live bet. This acts as a safety net should the market turn against you and protect the capital in your account for the unlimited losses that a spread betting account can incur if unprotected.

Learning to manage risk is one of the key decisions when starting out a spread trader. Thankfully, almost all brokers provide an educational area where beginners can learn how to spread trade, manage positions as well as techniques and strategies to begin speculating like professionals. For more advanced traders, many brokers provide introductory offers for new account holders including cash-back deals as well as discounted minimum bets for the first few weeks betting. These are particularly handy to make a smooth transition from traditional trading or those wanting to try spread trading with minimal risk.