What is Financial Spread Betting?

How does financial spread betting work?

Quite simply, when you spread bet you decide which way you think an instrument in the market will move. For instance, you would 'buy' if you think, say, the share price of Barclays will go up and 'sell' if you think it's likely to fall. The degree to which you are correct dictates how much you win or lose. So with spread betting you never physically gain or lose any shares, which also means you won't have to put up the full cost of the share. The only charge is the dealing spread.

What is the 'spread'?

The spread is simply the difference between the price at which you 'buy' and the price at which you 'sell' in a particular market. For example, say your spread betting company is offering the FTSE 100 Daily at 4025 / 4027. The spread is two points: if you want to 'buy' you do so at 4027 and if you want to 'sell' you do so at 4025.

What are the benefits of spread betting?

Apart from paying the spread, you won't pay any commission, brokerage fees, stamp duty or capital gains tax in the UK.

You decide: to go long or short

Whether you choose to 'buy' (go long) or 'sell' (go short) - it means that the more a price moves in your favour, the more money you make; the more the price moves against you, the more money you lose.

Leverage

With spread betting you can take a position on a market at a fraction of what you'd normally have to pay. Smaller deposits can result in magnified profits, but equally you may lose more than you initially deposited.

Manage and control your risk

You can take advantage of various devices that will limit your exposure to risk. Use Stops and Limits every time you bet, or pay a Controlled Risk premium to guarantee an absolute limit on any potential losses.

The range and diversity of the financial markets

The financial markets are incredibly exciting, here's just a taste of them:

- Forex. Will sterling strengthen against the US dollar? - Shares. How is a company's share price performing? - Indices. The FTSE 100, to finish up or down today? - Commodities. What's the price of oil right now? - Interest rates. Are they set to rise, or fall? - Options. Calls and puts, are you bullish or bearish about the future price of a stock?

Sophisticated online dealing platforms

Spread betting is generally done online, through a dealing platform and directly with the provider, not through an exchange. And it's important you choose the right one to help you trade effectively and safely. IG Index's PureDeal platform is considered by many as the market leader and is used by beginners and experienced spread bettors alike, It's browser based and allows one-click bets. It also includes a fully-integrated suite of professional tools, from live Reuters feeds to professional Charting Tools.

However, spread betting is not suitable for everyone, so before starting make sure you fully understand the risks.

IG Index can help you improve your knowledge of spread betting and the financial markets with a full education programme. TradeSense is a completely free six-week course and includes a 100-page guide to spread betting. Article Source: http://EzineArticles.com/?expert=Stacey_Harris