What Is Spread Betting?

By Author: Vickey Nhep
Total Articles: 6
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Although spread betting has grown massively in recent years, when most people hear of it they still think of an unusual method of betting on horses or other sports. In fact, spread betting is not a form of betting at all, but rather a method of trading on the movements of the stock market.

People who are involved in spread betting or CFD trading do so through trading platforms with specialist companies. Anyone can open a trading platform by simply applying and often transferring a small sum of money and they are essentially portals for trading on the stock market with all the prices on the platforms reflecting genuine, real-time prices on the markets.

Through these platforms traders can do everything that a normal stock broker does on the stock market. You can decide to sell or buy any financial instrument and therefore make a profit if the market goes in the right direction, you can enter into an agreement with someone to buy or sell at a certain price, and you can even short-sell, should you so desire.

Of course, as a real reflection of the stock market, spread betting is a complicated business. However, ...
... it is also a great way to learn about the real movements of the stock market and, if you trade well and carefully, a way of earning a little extra money.

Spread betting and CFD trading are forms of leveraged trading, this means that you can invest relatively small sums of money but potentially make big returns. The money that you trade is multiplied by the company to multiply your returns, so, if you trade on the market to rise, you will get your original stake multiplied by the number of points that the market rose. If you invest ?1, therefore, and the market gains 20 points, you will earn ?20.

By the same token, however, if you trade in the wrong direction and the market falls, you stand to lose your original sum multiplied by however many points the market falls. Therefore, spread betting is a risky business because you can lose massive sums of money.

Of course, there are methods that you can employ to cut your losses should things start heading in the wrong direction, but generally speaking the best defence of a spread better against significant losses is caution, and only trading when they''re sure that the market is going to act in a certain fashion.

Being exempt from Capital Gains Tax and with the possibility to invest in the stock market with a relatively small starting fund it''s not really surprising that spread betting has grown so quickly in popularity. Vickey Nhep is a money expert and market trader with over 18 years experience in stock market trading. They recommend CMC Markets for CFD trading.