How to Spread Bet
But what are the Odds? How do the Bets Work?
Spread betting providers do not quote odds. Their bets are ‘spread bets’, and they all work in basically the same way.
Spread betting providers quote a price for some date in the future, for example, the FTSE 100 Index in December. You decide whether the market will be higher or lower than their quote by that time. You can also choose bets with a daily time frame, for example on today’s FTSE settlement.
If you think the market will be higher, you make an ‘Up Bet’ – in other words you ‘buy’ at the spread betting provider’s quote.
You can take your profit (or cut your losses) at any time; you do not have to wait for your bet to expire. On a ‘buy’ bet you close by ‘selling’ at the provider’s current quote. On a ‘sell’ bet you close by ‘buying’ at the provider’s current quote.
The best way to understand exactly how spread bets work is to go through a few examples:
A Daily Bet on the FTSE 100
Suppose you want to bet on the short-term direction of the FTSE 100. The spread betting company’s Daily FTSE quote is currently 5716 – 5718. This means that you can ‘buy’ at 5718 or ‘sell’ at 5716. (‘buy’ transactions are made at the top end of the spread and ‘sells’ at the lower end). The spread betting company quotes 5716 – 5718.
You think the market is going to fall so you ‘sell’. You decide to risk GBP10/point. You ‘sell’ GBP10/point at 5716.
The market rises in the afternoon. You decide to cut your losses by closing your bet at the spread betting company’s Daily FTSE price.
The spread betting provider quotes 5734 – 5736. To close a ‘sell’ bet you simply ‘buy’ at the top end.
You buy GBP10/point at 5736
Your loss is calculated as follows:
Closing price: 5736
Opening price: 5716
You lose 20 x GBP10 = GBP200
You think the market is going to rise, so you ‘buy’. You decide to risk GBP10/point. You ‘buy’ GBP10/point at 5718.
The market rises in the afternoon. You decide to let your bet run to expiry.
The FTSE continues to rise towards the end of the day and your bet is closed at the official FTSE closing price. The settlement price is 5753
Your profit is calculated as follows:
Closing price: 5753
Opening price: 5718
You win 35 x GBP10 = GBP350
Financial spread betting is identical to sports spread betting and it’s easy to get into financial spread betting and learn how to spread bet.
Let’s start from the spread betting company and their point of view, in order to attract customers they offer a verity of bets on all sorts of financial products, commodities, stocks shares and so on. A spread is a higher and lower value which in the financial markets is the higher and lower estimated value of the financial product or the bet.
Let’s take as the oil price as an example: Since the oil is trending dramatically lately, the traded value of an oil barrel at the beginning of the trade is $50. The spread betting company sets the spread between $47 – $55, you decide to “buy” 5 oil barrels at $55 for $10 a piece which means it will cost you $50 of the bet. Let’s say at the end of the bet the oil price is $58 and you choose to cash out – you just made $58-$55 x $10 = $30 tax free!
That’s 60% profit on your initial investment – imagine that.
The same goes for any financial product you bet on.
On the investor or the gambler (depends how you want to look at it as financial spread betting is a little more complicated than just placing a bet on the red or black in the roulette) side, you are looking for the best value bets to place your bets with minimum risk and maximum profits. It all depends on your level of understanding the financial markets and the current trends in the market.
When learning how to spread bet there’s one thing which is very important and especially as a beginner you must use, the stop loss. The stop loss prevents you from losing more than you initially invested (or deposited). This means that the bet in case of losing won’t cause you to lose more than your initially deposited amount. If this option is not used, you might go bankrupt in case the bet goes REALLY wrong. But then it’s the same as a regular financial investment.
The buying and selling and the short and long definitions are well known in the financial market and spread betting is using them since the concept is almost the same.
When you learn how to spread bet, make sure you practice first before you start your betting for real money. There will be no excuses if you lose your money, much like placing a bet on your favorite horse, financial spread betting enables you to make money if your “horse” wins and lose money if your “horse” losses.