How does 'Spreadbetting' Work?

 So what exactly is spread betting? 

Spread betting is a high risk, high reward way to play the world's financial markets.

The "spread" in the phrase Spread Betting refers to the Sell (Bid) and Buy (Offer) price quoted by a spread betting company. This price is calculated around the live market price of a financial product.

If, for example, the live price of the FTSE was 4909 then the spread betting company may quote you 4907 (BID) - 4911 (OFFER)

The "betting" in the phrase refers as you would imagine to the fact that you are betting on the direction of the market.

When you spread bet you are not actually buying the stock or index but are betting as to which way you think the market will move.

You can bet per penny (in the case of shares) or per point (for commodities or indices) and the amount you bet is known as the "stake" , which can be from as little as £0.10, EUR0.10, $0.10 per point or penny movement.

All Spread Betting profits are recognised as the winnings of a bet, and are therefore free of Capital Gains and Income Tax in the UK.

Example 1

The FTSE "live" price is 4909

The spread betting company is quoting 4907-4911

If you think the FTSE will go up you "BUY" at 4911 for £1 per point

If the FTSE live price goes up to 4960 the spread betting company may quote 4958-4962.

You then "SELL" at 4958

Your TAX FREE profit would be your "SELL" price of 4958 minus your "BUY" price of 4911 multiplied by your "stake" (£1) which = £47.

Now let's say instead of the FTSE going up it actually went down to 4845 and you decided to cut your losses.

Example 2

With the "live" price now at 4845 the spread betting company would be quoting you 4843-4847.

Your LOSS would now be your buy price of 4911 minus your sell price of 4843 multiplied by your stake (£1) which = -£68

With spread betting you can bet on the market to RISE OR FALL.

Let's look at an example where you think the market may fall.

Example 3

The "live" price of the FTSE is 4900

The spread betting company are quoting 4898-4902

As you think the FTSE will go down you "SELL" at 4898 for £1 per point

If the FTSE live price goes down to 4855 the spread betting company may quote 4853-4857.

You then decide to "BUY" at 4857

Your TAX FREE profit would be your "SELL" price of 4898 minus your "BUY" price of 4857 multiplied by your "stake" (£1) which = £41

Now let's say instead of the FTSE going down it actually went up to 4950 and you decided to cut your losses.

Example 4

With the "live" price now at 4950 the spread betting company would be quoting you 4948-4952.

Your LOSS would now be your "BUY" price of 4952 minus your "SELL" price of 4898 multiplied by your stake (£1) which = -£54

To Make Profits in Spread Betting you need to

BUY LOW/SELL HIGH

OR

SELL HIGH /BUY LOW

It doesn't matter which way round you do it!

SPREAD BETTING IS A RISKY BUSINESS

There are ways to reduce your risk.

BET SMALL - When you start to trade bet at the lowest stake of £0.10 per point and only trade with money you can afford to lose.

USE "STOP LOSSES"

What is a "STOP LOSS"?

A "stop loss" trade is one that is made in order to set a limit to the loss made by an adverse price movement.

It's an instruction that you can give the spread betting company through their site or on the telephone if you wish.

Let's look at an example.

Example 5

The "live" price of the FTSE is 4875 then the spread betting company would probably be quoting 4873-4877.

You think the FTSE will go up and "buy" at 4877 for £1 per point.

You don't really want to risk too much money on the trade and you don't want to have to sit and stare at the computer all day so you enter a "stop loss" order to close your bet and automatically "SELL" if the price reaches 4845.

At the end of the day you come back to look at the market and you see it has fallen to 4810.

As you had entered the "Stop Loss" order to sell if the FTSE hits 4845 you should see on your spread betting account that you had indeed closed your bet at 4845 We believe every trader, no matter how experienced should always trade with a stop loss. Getdealing.com offer an automatically generated guaranteed stop loss feature as standard so unlike many other spread betting companies you can never lose more than you have deposited

By using Stop Losses you limit the amount of money you can lose to a pre-agreed amount.

How getdealing.com helps

Once you have learnt the mechanics of how to spread bet you will need to understand what makes the market you are trading move.

Markets move quickly and react to news stories, results and economic numbers instantly, making it imperative that you are kept informed in real-time.

Sifting through countless news reports trying to pick out what is likely to move the market is a daunting task for the new trader.

In the getdealing.com "dealing room" we act as a news aggregator, bringing your attention to the events that are moving the market right now. We can't tell you where the market will go but we can tell you when it is likely will move!

Our market moving event calendar will show you all the scheduled economic releases that will have an impact on the market today. We show you what the market is expecting (the Forecast), what the prior number was (the previous), and we release the current data in real-time (the actual) If the number is considered to have a positive impact on the economy the "actual" will be highlighted in green and if negative it will be red.

By hovering the mouse over the" i" you can get a brief description of what the data means and why it is watched.

The free getdealing.com Live Market Moving News is a market commentary that brings you the real-time news and views of the many market professionals we speak with throughout the day. We monitor every news wire to deliver you only the stories and data that will be having an impact on the markets right now in a language you can understand and act upon.

While the Live Market Moving News bring you the real-time events that are moving the market right now we have also added a selection of financial RSS feeds for general financial news.

Every morning we publish a "Market Brief" to let you know the important events that happened in the markets overnight and tell you what to look out for today.The market prices shown in the dealing room are the actual prices that you can trade on.

Watch how the live prices react to the data and news that we provide and learn what is driving the market.

Open a demo account now and use the information in the "dealing room" to help you make your decisions.

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