Spread betting is a high risk investment and you could lose more than you deposit.
Choose a broker
When choosing a broker to spread bet with, it is important to look out for the following:
The size of the spread offered
Any spread betting charges, like for leaving bets open overnight
Can you spread bet on any market you want
The smaller the spread, the less the market needs to move for you to make a profit.
Open an account
You do this by registering the following information with your chosen broker:
Date of birth
Any spread betting knowledge
Any spread betting experience
Your broker should send you an email confirmation for you to use to verify your account. The email will include a link back to the broker's website.
When you are ready to trade, add funds to your account using your debit or credit card.
Begin by betting on whether the market price of a product will go up or down. To make a profit, close your trade when the price movement has exceeded the size of the spread.
If you buy, or go long, you need the price to grow by more than the spread
If you sell, or go short, you need the price to reduce by more than the spread
It is when the market you are spread betting on moves up or down.
Spread bet example
The sell/buy price of the FTSE 100 is 6800/6801 (a one point spread)
To make a spread bet, you have to put down a stake, such as £5
If you think the price will go up, you place your £5 stake on the buy price of 6801
To make a profit, the price of the FTSE 100 must go up by more than one point. The following table shows the possible results of selling at different prices:
|Buy price||Sell price||Calculation||Result|
|6801||6804||3 points x £5 stake||£15 profit|
|6801||6801||0 points x £5 stake||Break even|
|6801||6800||-1 point x £5 stake||£5 loss|
Spread betting tools
You can use the following tools to manage your trades, helping you to close your position to gain a profit or reduce a bigger loss.
This closes your trade when it reaches a price point that gives you a profit you want.
The disadvantage of a limit order is that it closes your position even if the price movement continues in your favour, for example:
You buy at a price of 6801 and want to close your bet if it reaches 6830
The market forces the price up to 6850
Your limit order closes your position at 6830, giving you a profit
Without the limit order, your profit could have been larger had you closed at 6850
Stop loss orders
This is the reverse of a limit order, and closes your trade at a price point chosen by you to help limit your losses if the market goes against you. There are two types:
Stop loss: The broker will close your position at the end of a price movement that hits or exceeds the price you set for your trade.
Guaranteed stop loss: The broker closes your position at the exact price you set, even if the price movement ends at a further loss, but comes with a percentage charge.
Here is an example of how both types work:
You buy at a price of 6801 and want to limit your losses at 6790
The market forces the price down to 6785
A guaranteed stop loss would close your position at 6790
A stop loss would close your position at 6785, meaning a bigger loss
Most brokers charge you for keeping your trades position open overnight.
This charge can vary, with many charging as much as the LIBOR plus 3%, though some brokers may charge the LIBOR minus 3%.
LIBOR, or the London Interbank Offered Rate, is the average interest rate that leading banks charge to lend money to each other.