Spread betting can be risky, but it doesn’t have to be complicated. You can get started knowing 4 different types of spread bet. That’s it! Then, you’ll be ready to trade.
1# – The ‘futures’ style bet
When most people talk about spread betting, this is what they mean.
Futures style bets were the original spread betting type. You’re betting on what the price of something will be at a point in the future.
Futures style bets usually expire on a quarterly basis. So, March-June, June-September, and September-December, and December-March.
You don’t have to hold your position for that whole time – you can enter and exit anytime during the period. Usually, there two quarters open at any point in time – the near quarter (expiring in 0-3 months) and the far quarter (expiring in 3-6 months).
2# – Daily bets
Daily bets are really straightforward.
You bet on something, like the price of a share or the price of an index, and they expire at the end of the day. Traders like these because spread betting firms generally offer tighter spreads.
You don’t have to keep the trade open for the whole day. You can close it and take your profit or loss anytime you like.
3# – Rolling dailies
Rolling daily bets are the preferred bet for many spread bettors.
Instead of expiring at the end of the day like a daily bet, a rolling daily automatically rolls over to the next day.
Rolling daily bets are held open overnight, so you pay a small amount of interest on them each day. That’s because the spread betting company has effectively lent you money buying the shares on your behalf.
(If you’ve gone short and bet that the shares will fall, you’ve effectively lent them money, so instead you actually receive interest each night.)
Don’t worry about this too much. We’re not talking about much money, and it’s all worked out for you.
4# – Binary bets
Binary betting is a little different to spread betting. Since most spread betting firms also offer binaries, so it’s good to know what they are.
A binary bet has only two possible outcomes (hence its name).
A positive outcome will finish priced at 100, and a negative outcome will finish priced at 0. Until the bet expires, the price will fluctuate between 0 and 100 according to how likely the two outcomes are.
Binary Bets are simple, and their risk is 100% limited, since the market can’t settle below 0 or above 100.
Confused? Okay, let’s look at an example.
Example of a binary bet
Most trading firms offer a binary bet that says the NASDAQ will close up for the day.
Imagine it’s just after lunchtime, and the NASDAQ is indeed slightly up. The price of this binary bet might be 50-55. If you think the NASDAQ will hold onto its gains and finish up for the day, you could buy at £1 per point.
- If the NASDAQ does finish up the binary bet will close at 100 and you’ll win £45. (The bet having ‘moved’ 45 points during its journey from 55 to 100). If the NASDAQ finishes down, the binary bet will close at 0 and you’ll lose £55.
- You can also ‘short’ a binary bet. In this case, you’d be betting against the fact that the NASDAQ will finish up for the day. In this example, you’d sell at 50 and if you’re right you’d make a £50 profit.