Although fundamentally risky, spread betting can be a great way to earn money. This article will give you a brief introduction to the world of spread betting, and will provide you with all the basic information you need in order to determine if spread betting is right for you.
Investopedia defines ‘spread betting' as:“A type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price (also called the spread), and investors bet whether the price of the underlying stock will be lower than the bid or higher than the offer.”Spread betting is a type of speculation where ‘you place a bet on the outcome of an event where the payoff is based on the accuracy of the wager rather than a simple win or lose outcome.'[1]Here is a working example:“A spread-betting company quotes a bid of $200 and an offer of $203 for ABC stock and you believe that the price for ABC stock will be lower than $200. Since you believe that the price of the stock would be go below $200, you could “bet” $2 for every dollar that ABC stock falls below $200. Therefore, if the stock price after a week came to $190 you would receive $20, but if the price was $215 you would end up losing $30.”[2]For a short video on how spread betting works and further information, click here.David Jones, chief market strategist at IG index points out that “One of the key benefits of spread betting is that all gains are tax-free… But, a lot of people are signing up because they can get easy access to lots of different markets and react quickly to stories they read in the newspaper.[3]”Due to recent advances in technology, spread betting has grown rapidly. Phones and tablets have made the process even swifter than ever before, and it is now possible to place a bet from almost anywhere in the world.Although most spread bets are for large amounts, it is also possible to bet small amounts and minimize the risks involved. Something that is ideal for new starters who are low on confidence.The sensible thing to do is start small. David Jones states that “the markets will always be there… if you bet just 10p a point, even being on the wrong end of a 100-point move on the stock would only cost £10.”[4]If you think spread betting is right for you, but do not have the confidence to go through with it yourself, then you can use a well know and reputable spread betting company to help you. Companies such as this can educate you and take whatever scale of risk you advise them to. Spread betting can work for you and your business on a number of scales. Just make sure that the risk level is right for you, and that you fully understand all of the risks involved, before you speculate.