HOW TO PLACE A SPREAD BET
Advice on spread betting

 

The basic rules of financial spread betting

A spread betting company will offer a spread on the outcome of a specific event. The best way to understand the basic principles of financial spread betting is through an example.

Example: Placing a spread bet on the number of points that the FTSE will close on at the end of a day’s trading.

The financial betting company will offer a spread – say 6125 – 6135.  This means their prediction is that the FTSE will close between 6125 points and 6135 points.

A spread better may feel that there is going to be a lot of positive activity on the FTSE that day and many shares will rise, resulting in the FTSE index finishing up. Therefore you decide to ‘buy’ at £2 a point over the spread set at 6135.

If your prediction was correct and the FTSE closes at say 6150, then you will get £2 for every point over the spread offered by the spread betting company. (6150 – 6135 = 15, 15 x £2 = £30) You would win £30 from your prediction and spead bet.

However if your prediction was incorrect and the FTSE closes lower than you expected at say 6115 points, you would have to pay out £2 for every point below the spread. (6125 – 6115 = 10, 10 x £2 = £20) Therefore the loss on this bet would be £20.

If you had chosen to ‘sell’ at £2 a point and the FTSE closed on 6115 points then the win would have been £20.

Common questions:

What is a buy bet?
A buy bet is a spead betting term for a prediction that a financial outcome will end positively or up.

What is a sell bet?
A sell bet is a spead betting term for a prediction that a financial outcome will end negatively or down.

What is a stop loss?
The potential for losses in spread betting is unlimited unless you set stop losses. A stop loss is a value at which a spead bet is automatically closed. You set this value yourself so if your prediction is not correct and you are losing money, there is a limit to how much money you can lose.

Example of a stop loss: Say, following the example above, you set to ‘buy’ at £2 a point over the spread set at 6135, but things go horribly wrong and the market starts to drop dramatically, finishing 135 points down at 6000. Your potential loss for that days is 135 x 2 which is £270. (In spead betting terms, this is a relatively small amount - professional traders make or lose thousands of pound each day.). However, if you had been wise, you would have set a stop loss at say 6100 which means your maximum loss would have been 35 x 3 = £70. This is because the bet automatically closes when the FTSE index reaches 6100.

Relevent articles of interest:

>>> An explanation of what spread betting in and what it involves
>>> The basic rules of spread betting
>>> What are the advantages of spread betting?
>>> What are the disadvantages of spread betting?
>>> How to find the best online spread betting company

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