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What is Spread betting? How To Start Spread Betting - The Art of Spread Betting Explained

Spread-betting has become more popular than ever.
By now, you have probably heard of the term spread betting. It is advertised and offered by most of the major betting companies these days, along with a wide variety of specialist financial market spread betting companies too. Spread bets allow you to bet on the underlying movement of an instrument without actually owning the instrument itself. This means you can profit (or lose) on movements travelling in both directions - both upward trends and downward trends. Spread betting companies typically offer you a 'spread' - and it is this spread where the company normally makes its money from you. They do not generally charge commissions for trading, instead they simply profit from the size of the spread offered. For example, if you wanted to trade the GBP/USD via a spread bet and the current interbank rate was 1.5500, they may offer you a BUY price very slightly below this, and a SELL price very slightly above this figure. That way they have already locked in their profit from you via their spread regardless of what happens with your trade, and whether or not you make money from it or lose money. The typical unit financial spread betting companies use to describe their spread is a 'pip'. Companies offering the lowest pips as their spreads often secure the most clients, simply because the fewer the pips offered as their spread, then the fewer pips you need to regain before you are clear into profit again.

Some spread betting companies are now offering zero pip trading or no spread trading - this is normally in return for a deposit of £5000 or £10,000 on account prior to trading. If you are in a position to depoist this level of funds however, it gives you much more flexibility with your trading - being in a zero pip situation means you do not have to regain any pips in order to profit (or lose) from market movements. Any movement affects your position immediately. How does a spread betting company make money from a zero pip trade though? Firstly they only offer it on a select number of products - mainly financial instruments where the spread was already very low at around 1 pip, they also make money from traders holding their positions overnight - if you don't close down your position each day many companies charge a rollover fee to continue it trading. This is often needed if you are in a losing position but feel you will make your pips back on the following day ad so wish to continue holding your position and try to trade out of it.

How risky is spread betting? The answer is easy - very. It is normally a leveraged product, which means that your gains and losses can change suddenly with the markets, and if you are in a losing position you can lose more than you originally deposited and are liable for your additional losses. There are various instruments that you should always ensure you are using, such as stop losses - these do what they say on the tin by stopping loss. When opening a trade you should always consider what your stop loss point will be - this will then automatically close out your trade if it gets to a point where the loss becomes too great for you to continue holding your position. Stop losses are not always guaranteed, and if there's a sudden jump in the market it may miss your stop loss completely and you continue losing money, it is for that reason the guaranteed stop loss was created - this guarantees the trade is cancelled at your chosen point, limiting your potential losses.

This is just one useful tool, there are also other great trading tools that work in the other direction and automatically take your profit for you when your position gets to a pre-defined point. Look into the sliding stop loss as well. This stop loss slides up with the market basically locking in your profit if the market turns in your favour, but still protecting you if there is a sudden change.

Which Spread Betting company should i use? There is more choice than ever now, which means more competitive offers to entice you to open an account and start trading with them. If you are brand new to trading, you should choose a company that offers a free demo trading account, this gives you free practice money (not real money) so you can play around on the markets getting yourself familiar with what's available and how to place trades. There is also a wide variety of free resources available that teaches you the basics of how to trade the financial markets.

Bear in mind also that on top of the financial markets, you can also now spread bet sporting events too, simply check out some of the leading spread betting companies on your right and see which best meets your requirements.

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Disclaimer - Spread betting is a highly risky form of gambling and you can lose more than you initially deposited. Seek independent financial advise before spread betting if you are in any doubt of the risks involved to your capital. Honest Johnny Ltd will not and cannot be held responsible or liable for any actions taken as a result of reading any information supplied on this website.
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