Spread Betting - big rewards, big losses

Spread betting originally began as a way to speculate on the fluctuations of financial markets, and has been around for about 25 years. Like normal betting, you speculate on the outcome of something, for example a horse winning a race. With standard betting you bet on the horse to win- if it wins, you win. If it loses, you lose. With spread betting, however, it is possible to make money on the loss as well.

With financial spread betting and other speculative investments like CFDs, prices of shares are quoted in pairs.  If you were viewing the price of Centrica for example it would look like this:

Cen 306 / 312

The low (known as the bid or sell) estimate of the price is written first and the high (known as the buy) estimate of the price is written second. The spread is the difference in value between bid and the buy price.  If you thought that Centrica were going to do well and their value was set to increase, you would pay the ‘buy’ price for the share. This does not mean that you would buy the investment directly- it just means you would bet an amount on each point or 'penny' that its price moves. As the price moves, your profit or loss is simply the price movement multiplied by your stake. So if you went for the buy price of 312, betting a £10 per point increase and Centrica’s value rose to 325 your profit would be £130:

325 (actual price) – 312 (buy price)

= 13 x £10 (stake)

If you thought that Centrica were going to do badly that day, you would go for the sell price. This would work exactly the same, so if you went for the sell price of 306, betting a £10 per point decrease and Centrica’s value sunk to 201 your profit would be £150:

306 (sell price) – 201 (actual price)

=15 x £10 (stake)

However, if you were to guess wrong, you would stand to lose just as much. Again, if you went for the sell price of 306 and Centrica’s value actually rose to 321, you would stand to lose £150:

321 (actual price) – 306 (sell price)

=15 x £10 (stake)

As can be seen, as attractive as spread betting can be it can also be very dangerous- always remember that when you lose with spread betting, or a CFD, you lose big. Never gamble with capital you do not have. It is essential you make the most informed of decisions, which is why it is important that you invest with reputable, dependable companies.  City Index has over twenty five years trading experience and is perfect for established betters.  It offers easy to understand explanations of CFD trading on its website.  Other companies you may want to explore include Finspreads, one of the pioneers of online spread betting (they promote themselves as being most suited to newcomers) and the Selftrade Spread Betting Trading Academy, which offers a comprehensive education package ideal for those just getting started.