What is Financial Spread Betting?
Financial Spread trading (also known as spread betting) allows you to speculate on the outcome of almost any financial market, over a set period of time. Spread bets can be used to speculate on price movements irrespective of whether the markets are rising or falling. This means that spread betters are able to ‘go long’ (buy) or ‘short’ (sell) on market prices.
Similar to futures markets, spread trading takes place through a financial bookmaker who assumes the other side of the transaction. It is an ideal mechanism for traders with limited initial trading capital. Financial bookmakers exist to make money by taking your money. Over time the average punter will lose many more times than they win. Like the futures markets I estimate that over 90% of clients lose over the long term.
By visiting this website you have identified yourself as better than the ‘average punter’. Through the methodology described in this guido, you can dramatically increase your odds of becoming part of the successful 10% of spread traders.
Trading With a Financial Bookmaker
Trading with a financial bookmaker is similar to trading within any market. There is a BUY price and a SELL price (the spread). Traders simply have to decide their outlook for a particular market and then seek a quote from the licensed bookmaker.
A ‘spread’ is quoted, such as 5000 – 5010 for the level of the German DAX index. If you decide that the index will rise you can place an up-bet, or you may decide to gamble it will fall below 5000. The trader can then selects the trade size (ranging from a few cents with some bookmakers to thousands of dollars per point).
For every point that the investor is right, or wrong, in their prediction they win (or lose) a multiple of the initial stake. For example, if you believe that the DAX index was heading for a rally, you could either place a rolling bet on the daily movement of the index or take a longerterm view by betting on its likely level in a few weeks or months.
Using the previous example you may decide to bet the index price will rise and wager $1 per point. This means that every point above the higher number in the quoted spread (5010) will earn you $1 and every point below it will lose you $1. So if the index quote rises to 5200 –5210 and you decide to close you bet you will make $190 (i.e. 5010 minus 5200 multiplied by your $1 spread bet).
Conversely, if the index quote drops to 4800 –4810 and you decide to close your bet before losing more money you would lose $210 (i.e. 5010 minus 4800 multiplied by your $1 spread bet).
You will always buy at the higher quote and sell at the lower quote. The spread between the two quotes represents the financial bookmakers’ opportunity for profit or spread.
Financial spread trading offers leverage similar to the futures market but with the added advantage of offering traders the opportunity to decide exactly the size of the bet without being limited by fixed contract size.