Introduction to Financial Spread Betting

Not many people realise that it is possible to profit from stock markets such as the FTSE 100 or the NASDAQ without actually trading in the stocks and with absolutely no paperwork. Not only that, but they are unaware that all this can be done tax and commission free.

However, that is exactly what financial spread betting allows you to do. In essence, it is similar to sports betting, in that it is a flexible way to capitalise on the fluctuations in different markets based on knowledge and research.

This method also applies to other financial instruments such as foreign currencies, options, commodities and shares. Financial spread betting covers a wide range of outcomes and scenarios across many timescales and of course, just like sports gambling, it is 100% tax-free. With markets in such a volatile condition, spread betting gives shred operators the chance to profit irrespective of the direction that the indices shift. Millions of bettors have already started to delve into these markets and many more are expected to follow.

Financial spread bets are normally placed with a specialist who is similar to a bookmaker. They will offer a spread that covers a certain value and the punter can then bet whether the market will go above or below the value. The bettor will then win or lose an agreed cost for each point above or below the spread.

For example, the spread is set at 4300-4302 and one punter expects the market to rise above 4302 so they buy points at the “offer price” of 4302. Another punter thinks the market will drop so they sell points at the “bid price” of 4300. The price would be set at a monetary unit per point such as £1. If the market rises to 4312 the buyer gains £10 in profit but if the market falls, while the seller would lose £12. The £2 difference goes to the broker.

Of course, the danger with this type of betting is that the amount that can be won or lost is variable. So a big rise or fall in the market could produce a very big win or a devastating loss. As a result, a punter can apply a “stop loss” that will automatically sell the bet if it hits a certain benchmark. This can help to prevent losses that the punter cannot afford to pay.

For example, the seller can take a bid price of 4300 but set a stop loss order at 4310. As soon as the market rises to that level, the bet is sold and the loss is limited to £10. Even if the market recovers within the originally agreed timescale, the wager cannot be claimed as the stop loss is irreversible. Therefore stop losses should be set at a level that allows for normal fluctuations in the trading day. Opening a spread betting account is a fairly easy process and most broker have online portals where this can be done. Punters can establish a credit account by depositing funds or a debit account where funds are withdrawn and deposited directly to a card account. The maximum potential loss of each wager must be paid up front and any winnings can be withdrawn at any time.