Introduction to Spread Betting

The buzz around spread betting has suddenly gained momentum with everybody discussing and talking about it. Spread betting is a form of gambling which is used to gamble in sports and by bettors. When spread betting involves betting on shares and stocks it takes the form of financial spread betting. To understand its working better it would be safe to assume that spread betting is a form of leveraged gambling which is based on the movement of the concerned shares and stocks. in a normal scenario when you approach a traditional stock broker he will quote two prices to you. the lower of these two prices is what you will get if you plan to sell the share while the higher value will be yours in the event of you choosing to buy the share. The difference between these two prices is termed as the spread. To illustrate this scenario I will take the help of an example. Assume that you are interested in a particular share X whose present spread is 10-20.

It has come to your notice that the price of this share X is going to rise in the future and so you take a buying stance on it at Rs 1. After a week as expected the price of X has reached Rs 30. So you now end up with a neat profit of Rs 30 on your spread bet! [( 30-20) * 1] on the other hand say your speculations go wrong and the price of X stumbles to Rs 5, so in such a case you end up loosing Rs 5 [(10-5)*1]. This is how spread betting works. if you truly and confidently believe that the price of the share is going to go up then you buy that particular share at its offer price which is the higher of the two prices quoted. On the other hand if you think that the share price is going to do a reversal then you offer to sell that share at its bid price which invariably is the lower of the price quoted. Once you have decided that you are ready to place your bet then you would be required to quote a price for your bet. Your bet will continue to stand valid and true till you actually close it.

The difference it has from the traditional share brokers is that the spread betting company will charge you a spread which is the buy and sell bet for each share on every bet quoted by you. the price quoted as the ‘ buy price’ will always be higher than the market price and on the other hand the ‘sell price’ will always be lower than the market price. This concept is what actually allows the spread betting companies to end up making a profit. No matter if you win or lose your bet the company will always end up with a profit.

For easy understanding I am listing below the important features associated with spread betting and its mode of functioning.

• Spread betting involves you buying a bet at one end of the price range and selling at a bet which is at the other end.
• The more accurate and correct your predictions are the more money you end up making. On the other hand if your predictions go all wrong then there is enough risk of you ending up losing a large amount too.
• The amount that you choose to bet on each of your stake will determine in the end how much money you will end up winning or losing.
• Spread betting gives you the unique opportunity to make money irrespective of the direction that the market is moving. Here you end up making money even if the market is going up or down.
• Spread betting does not give you possession on the stock, share or the commodity that you are betting on. It is a form of a contract will allows you to place a bet on the spread of the commodity of your choice.