What is Spread Bet Trading?

Spread bet trading is one of the most efficient ways of making money out of the financial markets. Sometimes it is referred to as spread betting, and some people like to draw distinctions between these two names, but they amount to the same thing. In either case you are wagering on the movement of the price of a financial instrument or security.

Spread bet trading is just one of the ways that you can make money off the financial markets, but it is one of the better ways, particularly if you do not have much money to start with. Because it is a leveraged product it offers potentially great returns, although that also means that, if you are not cautious, your losses can also be large.

One reason that spread bet trading is a better name than spread betting is that the word betting is associated with sporting events and with singular outcomes. In horseracing, you bet on the winner, or sometimes on a horse to be placed, and if the race does not go in your favour, you lose your bet. If it does go in your favour, then you know from the odds that you received when you place your bet how much your winnings will be.

In contrast, spread bet trading can have a range of outcomes, and you do not know in advance how much your bet will be worth. Just like regular trading on the stock market, your spread bet is worth more when the stock price goes up (or down) more. And you do need to work out when placing your bet whether the price is going up or down, as if you choose the wrong direction you can lose significantly.

One of the advantages of spread bet trading is that the charges are easy to understand. The price that you can choose to “buy” or “sell” at is different for a given security, and the difference between the two prices is the spread, which is where the provider makes a profit. But once you have settled on the bet, then there are usually no other costs or commissions.

So for the trader who was considering trading on the stock market, spread bet trading can represent an easier and less expensive way of making money. Instead of deciding on a number of stocks to buy, the spread bet trader simply names a certain amount of money, perhaps one pound sterling, for each point that the price moves. The provider requires a certain amount of deposit as a safeguard against the bet losing, but a winning trade can make far more than the required deposit.

You can also appreciate the power of spread bet trading when you realize that you are not restricted to profiting from the stock price movements in your local market. Spread betting allows you to profit from movements of prices of commodities, of foreign currencies, and of stock indices and stock prices in markets around the world. Your bet will always be made in the local currency, keeping things simple.