by Andrew Porter

Created on: April 30, 2010

Financial spread betting is a very risky way of playing the stock market, but does have the advantage of allowing you to make money no matter which way the market is going. It is just as easy to make money in a falling market as it is in a rising market. Financial spread betting is similar to sport betting, but you bet on the outcome of the financial markets instead of horse races or football matches. It is also possible to do fixed odds financial binary spreads: i.e. bet on an event occurring analogous to a win/loss in a sporting event. As with any kind of investment it is possible to reduce the risk involved and even to use spread betting to reduce the risk of an existing portfolio.

How to Spread Bet Stocks (relatively safely)

Any kind of stock-market investment is a bit of a gamble, but only spread betting is actually classed as gambling for tax-purposes (i.e. no tax in the U.K.) which makes it rather useful, especially for a higher-rate tax-payer.

With most investments (e.g. shares) the stake is the total cost of buying the investment so the most you can lose is all of your money, and the profit theoretically limitless although usually small relative to the initial stake, in any one year. With spread betting you are just betting on the direction of the chosen market, share, index or commodity etc. E.g. you might want to bet £1 per point that the FSTE100 will rise, in which case you will get the number of points the FTSE rises times the £1 stake minus the "spread" between the buying and selling prices quoted when you start the bet. Similarly if you think the price will fall you can bet the other way, or short the FTSE (which has been useful over recent months, making a profit from the falling stock-markets) The potential gains or losses can be huge compared to the stake, for instance if in the previous example the FTSE moved 100 points you could win or lose about £100. Effectively a £1 bet gets you exposure to about £5500 worth of FTSE shares (assuming the index is at 5500 at the moment)

Most spread betting companies provide a wide variety of things to bet on from house-prices to currency exchange rates, shares, metal prices and bonds. Unfortunately this is where it gets a bit tricky because if you want to bet on an actual price of something, or a "rolling" price the bet is effectively just for today, so if you want to keep the bet open (to roll it over into tomorrow) you have to pay the spread again, which makes it more expensive,

• 1
• 2
• 3
• 4
• Next Page >>