Spread Betting

Spread betting is gambling. It is not investing and it is not trading. The spread marks a range of possible outcomes of a given event. The predictions are presented in the form of two prices. You have a choice of betting low or down (also known as a Sell) at the first named price or betting high or up (also known as a Buy) at the second price.

You are not actually selling anything, what you are doing is betting that the lower value of the quote will not be reached. Neither are you actually buying anything, you would be betting that the higher value of the quote would actually be exceeded.

After making a fixed odds bet you have to wait for the bet to expire. With spread betting you may close the bet at any time and take your winnings or limit your loss. A number of firms offer spread betting on sporting and political events. You may also make spread bets on share prices and stock market indices. Here's a straightforward example of how spread betting works:

Let's say a spread betting firm quotes Vodafone shares at 145-155. If you believe Vodafone will rise you place an up bet at the top of the spread which is 155p. If you think they will fall, you place a down bet at the low end, which is 145p. If the market moves in the direction you predicted, you win. Assume you make an up bet of £10 a point.

Say the market has risen and the spread betting firm is quoting 170p-180p on the day you close your bet, your winnings would be calculated as follows: (180-155) x £10 = £250. However, if the share price had fallen, instead of winning £10 for every point, you would be losing £10 for every point. In fixed odds betting you know how much you are likely to win and how much you stand to lose. In spread betting, the more you are right, the more you win and the more you are wrong, the more you stand to lose.

Risk Warning - Spread betting involves a high level of risk and you can lose more than your original stake. It is not suitable for everyone so please ensure you understand the risks involved and only bet with money you can afford to lose.

Last Updated: November 2007 © Moneyextra.com

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