So What is Spread Betting?

Some people believe that spread betting is too complex for them to understand, but in reality the concept of spread trading is relatively simple to grasp; what is harder is to consistently get the market direction right.

For instance let’s take the case of the FTSE 100 which is one of the most popular markets for trading. The spread betting provider may quote a price for the FTSE, for example 5500-5502. You can then bet on whether you think the index will go up or down. If you believe that the FTSE 100 will fare well and increase, you could buy (i.e. go long) at 5502; for instance GBP 10 per point at a value of 5502.

In this case you will gain GBP 10 for each point that the FTSE 100 rises over 5502. If the FTSE were to close at 5580, you would end the day with GBP 780 in profits [(5580-5502) x 10].

As with all other forms of trading, spread betting carries risks. If the FTSE 100 were to fall in value you would also lose GBP 10 for each point that the index falls. But this is what makes the game harder (and for some at least) and more interesting; it is important that you get the market direction right which is a lot harder to do on a consistent basis…. Of course if you wanted and this is one of the peculiarities of spread betting; if you wanted you could also have placed a spreadbet that the FTSE 100 will fall in value, and make money in the process too!

So how do you Trade in the Right Market Direction?

This is a vast topic in its own right but essentially you need a good knowledge of the markets you’re trading, a good knowledge of your risk/reward expectation, a good knowledge of your transaction costs (in spread betting this is mainly the gap of the bid-offer spread), a trading system which is proven to work and a strong heart! That should about do it.

Good luck and good trading.

Andy provides educational and training spread betting courses for private investors and traders of all skill levels.