Spread betting is a form of betting that implies greater gains or losses in proportion to the degree by which a bet is correct or not.
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In the finance markets spread betting is referred to as a tax free derivative whereby you may speculate on the price of an asset of one kind or another. You are betting as to whether the price will rise or fall, and by how much within a specified time. The degree to which you are right or wrong determines the amount of your profit or loss. In the financial arena you can spread bet on a pair of currencies relative to each other, on a stock, or even on an index such as the Dow Jones, FSTE 100, DAX, or Nasdaq, amongst several others.
There are three different parts to a financial spread bet: the spread (initial opening charge), bet size, and the bet duration. At the end of the duration the bet expires and profit or loss is determined and apportioned. The market price of an asset is actually two prices: the one you can buy (bid) at, and the one you can sell at (offer), and the spread is the difference.
If, for example, the FTSE 100 is trading at 6545.5 and has a one point spread, this would indicate an offer price of perhaps 6546 and a bid price of 6545.5. So in general the bid price is the highest that anyone will pay to buy whilst the offer price is the lowest that anyone would sell at. The bet size is defined as the amount bet per unit of movement in the market, and so determines the ultimate size of profit or loss in conjunction with the spread. The profit or loss on a bet is thus calculated as the spread multiplied by the value.
The price movement in the markets is usually measured in points. Let us say, for example, that we open a trade on the FTSE 100 at £2 per point, and then it moves 40 points in our favour within the time frame of our bet. We should then be in profit by £2 X 40, which equals £80 – not bad at all! Note however that a similar move against us would result in a loss of £80!
With a financial spread bet you can generally choose your duration time but can usually close out anytime beforehand should you wish to take your profit or reduce an expected loss.
Sports spread betting is similar in principle in that the degree to which you are correct in your bet determines the amount of profit or loss. The underlying market movement here could relate to the number of runs scored by a team in a cricket match or number of goals in a football match, for example. Other scenarios might include the number of lengths by which a winning horse actually wins its race, or the time of the first goal in a football match.
So here we have the spread as the difference between two points between which are a number of possible outcomes. You make a prediction to “buy” if you think a certain predicted odds offered is too low, or “sell” if you believe it is too high. Most bookmakers offering spreads use a points system.
A way to determine your stake size is to hypothesize about the worst potential outcome and adjust your stake to what you could afford to lose.
Spread betting can be very profitable if you get it right, but can lose you a lot of money if you are wrong, or very wrong, and so is not for the faint-hearted. In fact it probably is best left to those who have an in-depth knowledge of a particular sport and can exploit a niche market, such as number of corners in a football match if you know a lot about the players and their temperament history.
If you do get involved it is probably well worth paper trading first with spread betting in order to get an idea of how much you might win or lose before wading into the markets because you can easily lose more than your stake with this kind of betting.
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The number one Betting Exchange. 5% fees on winning trades. The highest liquidity. | Visit | ||
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