In the UK and Ireland, traders can make bets on changes in price movement of a multitude of assets, calling this type of trading “spread betting”. They can benefit from short-term fluctuations in price, although it is a risky method for even the most experienced of traders.
In this article, we will describe a relatively new method of trading and discuss its key features.
What is spread betting and how can you make money?
It is believed that this trading technique originated in the UK in the 1970s. It quickly gained popularity in betting circles due to the potential for high profits on the price difference (but equally losses).
This tactic involves active trading derivatives in the financial markets. The main principle of spread betting is the ability to set your own price for each point of price movement. When making a transaction, a trader cannot directly buy a financial asset. They bet on the growth or fall of prices and can increase their starting capital if successful.
Example of spread betting
During spread betting, brokerage firms offer their clients a spread (the difference between the purchase and sale prices of an asset). Depending on the forecast made, the trader bets on the growth or fall of the value. This tactic allows you to independently choose the value of one point and indicate the expected price behavior. The size of the rate will depend on the established brokerage conditions and the financial solvency of the client.
Classic trading vs spread betting
Spread betting differs in many ways from conventional trading. Spread betters can only bet on the growth or fall of the asset’s price, anticipating its future behavior. They do not become full owners of the financial asset.
There are several advantages to why spread betting is becoming more popular:
- A relatively small starting capital is sufficient, as spread betters are required to trade with leverage, which allows them larger exposure to the financial markets.
- There are no commission fees when trading on shares.
- A trader gets the opportunity to set any price point. If they correctly indicate the direction of quotes, they will receive the specified amount. Otherwise, they will lose the entire bet.
A novice trader should be aware of the high risks of spread betting, as this tactic is distinguished by instant decision-making and can result in major losses. A player can quickly earn or lose all starting capital in just a few hours. In order not to lose the accumulated money, you should think over the scheme of actions in advance, try it out on a demo account and test your strategies for effectiveness.
Spread betting — your first step into the world of trading
Many people choose short-term trading as a way to make money for a living and, at the same time, devote themselves to an enjoyable hobby.
Spread betters must choose their trading platform, deposit capital, choose a trading instrument and allocate several weeks to learning and practicing the new hobby. For some, this will one day become their main source of income.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
