Financial Spread Betting

The Concept

Financial spread betting is based on a simple concept. If you think that a certain financial market or product will rise in value, then you buy the product. If you think that a certain financial market or product will fall in value, then you sell it.

Buying a Rising Financial Market or Product

Once you have bought a financial market or product that you believe will rise in value, then in due course, if your prediction is correct, you can sell the market or product for a profit. (If you are incorrect and the value falls, you make a loss.)

Selling a Falling Financial Market or Product

Once you have sold a financial market or product that you believe will fall in value, then in due course, if your prediction is correct, you can buy the market or product back at a lower price, for a profit. (If you are incorrect and the value rises, you make a loss.)

What is a Spread?

The spread is the difference between the buying and selling price of a financial market or product. It represents the market-maker's potential profit or loss on a transaction.

For example:

Market Description: Wall Street - Dec
Sell: 9781
Buy: 9790

Wall Street had a price of 9781 - 9790 points (financial markets quote values in either points or currencies). That means that you could buy for 9790 points and sell for 9781 points.

How Do I Trade?

If you think that Wall Street will rise in value, then you request a price via the Internet. The trader will give you the spread (e.g. 9781 - 9790 points), then you buy at 9790 for an amount (say £2) per point movement.

If the price moves up to a spread of 9870 - 9879 and you then sell at 9870, you would realise a point profit of: 9870 (price you sell for) - 9790 (price you bought for) = 80 points. As you have placed a trade of £2 per point, you would make a profit of £160.