Learn about Spread Betting



What is financial spread betting?

Generally speaking, spread betting refers to a type of wager on the outcome of an event – in various fields such as sports and finance. You make a prediction as to the whereabouts of the outcome on the range of possible outcomes (the spread): below or above. Likewise, the concept behind financial spread betting is simple. Financial spread betting is another way of trading a financial product or market without having to physically own it. It therefore belongs to the category of derivative instruments. Here’s how it works: if you believe that the value of a certain financial product or market will rise, you place a buying order (you go “long”), with the intent of selling the instrument at a higher price. If you believe that it will fall, then you place a selling order (you go “short”), with the intent of buying it back at a lower price.

Spread betting involves a “contract” between you, the investor, and your spread betting dealer, Finotec Spread Betting, in which you will either win or lose the difference between the opening and the closing price of a financial product. Spread betting is done on a wide variety of products and instruments such as individual shares and currencies (forex).

Profit and loss in financial spread betting

As an investor, spread betting thus allows you to “bet” on the future direction (up or down) of the price value of a financial instrument. Your profit or loss is the difference between the price at which you initially buy or sell and the price at which you later sell or buy. This means that you can profit from rising markets from falling markets.

If your prediction proves to be correct, profit is equal to your stake multiplied by the number of points by which the price has moved in your favour.

If your prediction proves to be wrong, loss is equal to your stake multiplied by the number of points by which the price has moved against you.

“Going long” on a rising financial instrument

When you buy (go long on) a financial instrument thinking it will rise in value, you can sell it back for a profit if it does rise. Please remember that while financial spread betting carries a potential for high returns, it can also lead to losses if you are wrong.

Example of spread betting – long trade

“Going short” on a falling financial instrument

When you sell (go short on) a financial instrument thinking it will fall in value, you buy it back at a cheaper price if it does fall. If it goes up, you lose.

Example of spread betting – short trade

In Spread Betting, what does “spread” refer to?

As you may know, financial instruments available for trading are quoted in pairs – the bid and the ask price. The first price, the bid, is the “sell” price and the second price, the ask price, is the “buy” price” The difference between the bid and the ask price is known as the spread. With Finotec Spread Betting, you trade the lowest spreads on the market.

For example, the Barclays share would be quoted: BARC 526.720/ 533.780. This means that if you expect a rise in Barclays share value, you will buy at 533.780. If you expect a decrease in the share value, you will sell at 526.720.