How Financial Spread Betting Works

Before we study the subject any further, let’s take a simple look at how financial betting works, to give you some idea of what you are going to be doing :

One of the most straightforward financial markets you can bet on is the London Stock Exchange and, in particular, the Financial Times Stock Exchange indexes, which are known as the FTSE or ‘footsie’. A financial bookmaker will make a prediction as to the closing price of the market at some future point. It is then up to the client – you – to decide whether you think the prediction is too high, or too low.

Again, one of the most straightforward ways to bet on the FTSE is on its daily closing value. So you call the financial bookmaker and ask for a quote on the ‘Daily FTSE’. Rather than fixed odds as in horse race betting you will be given a spread – hence the name spread betting – of two figures, let’s say 6410-6417. This is a prediction of what the bookmaker thinks the price of the FTSE will be when the market closes at 4.30pm that day. Your view in this case might be that the market will close higher than that. Therefore you place a bet to ‘buy’ (although you are betting, not actually buying) at 6417 for a stake of £10 per point. In other words, for every point that the index closes above the quote given by the bookmaker you stand to win £10. On the other hand, if the market closes under the level you have predicted you will lose £10 for every point under that level. Simple!

What is Financial Spread Betting

Financial trading is a little more flexible than that, however. Because if, during the day as the FTSE changes, you decide that you wish to take your profit (or cut your loss) there and then, without waiting for the closing price, then you can do so there and then. For example, if at some point during the day the bookmaker’s Daily FTSE spread has risen to 6450-6457 you can make a trade in the opposite direction. In this example you might decide to sell the Daily FTSE at the lower figure of 6450. Your profit is the difference between the closing sell price (6450) and the opening buy price (6417) multiplied by your stake. So, in this case, your £10 bet would win you £330!

This, at its simplest, is how financial trading works and you will see that, with judgement – and also a little luck – the potential for making money is literally incredible! There are, however, many more markets you can bet on, and many more advanced methods for understanding and trying to predict them. The aim of this guide is, not only to explain exactly how the financial betting market operates, but also to reveal to you many other opportunities that you may not find out about elsewhere, and many little known strategies to help you predict markets and use your bets to make the most possible money.

Leverage in Financial Betting: What is Leverage?

Leverage is a term used for trading on ‘margin’ or borrowed funds. Leverage is a powerful tool. Using borrowed money allows you to control a position worth many times more than the funds in your trading account. Levering yourself up ten times can turn a 10 per cent market move into a 100 per cent profit – or loss, if you’re wrong about its direction.

Let us consider the following bet:

The FTSE is currently at 6150 with a bid/offer of 6151/6149 We place a bet that the FTSE will rise:

We BUY the FTSE daily @ 6151 with a guaranteed stop-loss at 6131. As our maximum loss from this bet is £20, this is all we will need in our account to place the bet.

However, the price movement within the day is equivalent to having £6150 invested in the index, allowing for vastly increased profits and losses.

Say you’ve got £1000 spare that you decide you can commit to trading. You open a £5-a-point position on the FTSE. If the FTSE is at 6151, the value of your position is £30755. If the index moves 250 points against you – which amounts to just a 4% change – your £1000 will be entirely wiped out (not to mention that you would be in the red for £250).

The key here is only to take positions that you can comfortably afford. Risking your entire trading pot on a single trade would be totally irresponsible. If you’ve only £1000 to spare on trading, you should take positions at the smallest available size.