How it works?

Regardless of the type of spread betting transaction you are undertaking (sports or financial), you will abide by the same basic principles when it comes to the process of buying and selling.

So how does spread betting work?

Let’s look at spread betting in the realm of company shares for this example.

Basically it all starts when the spread betting firm quotes a betting spreads on their estimate for the outlook on a share.

As the spread better, you then decide on whether you think the quoted price is likely to be higher or lower. You spend time studying the betting spreads and decide whether or not there is a spread betting option there for you.

To rewind for a minute here and put the whole concept of spread betting into perspective quickly first – this will help you to get betting spreads and spread betting specifics firm in your mind.

Think about the process when you originally approach your stockbroker if you’re seeking to buy shares you will get two prices given to you.

1. The Bid price – this will be the lower of the two prices and you will likely get this if you are selling the shares
2. The Offer price – this is the higher of the two prices and this is what you will pay if you are buying shares.

The difference between the Bid price and the Offer price is known as a “spread”. This is why we say we’re “betting spreads” when we are spread betting.

Following?

Okay back to our example on how spread betting all works.

So when it comes time to hedge your bets on betting spreads in the world of spread betting, you will sell your bet at the Bid price if you think the share is likely to lose ground.

If you think the share is likely to gain ground, you buy at the offer price.

This is the crux of spread betting right here.

Now the fun begins!

At placing your spread betting bet you now need to decide what your wager will be. Make sure you spend some time considering the betting spreads here first – due diligence wins the race when you are starting out in spread betting.

You can wager your spread betting on a per-penny/cent basis or a per point basis, but keep in mind, if you bet on a share on a per cent basis at $1 you will win or lose $1 every single time the share goes up or down by a cent.

This could mean great wins if the share price soars, but it can also mean serious losses if the price takes a tumble.

The trick is to make modest bets when you’re first starting out in the spread betting game. Betting spreads is complicated – learn the ropes first, do a couple of small spread betting trials before you really get into the swing of it.

Let’s look at a Buy and Sell example so we can put it all into perspective.

For the purpose of this example let’s say you are betting spreads on the S&P ASX 100.

Times are tough and you are hedging your bets on the S&P ASX 100  in the near future due to poor employment statistics and slumping retail sales Down Under.

BUY

The Australian economy seems to be gaining strength, and you are heading your bets on the S&P ASX 100 gaining ground in the near future due to strong export sales out of the country.

You buy the S&P ASX 100 at 3601 and bet at £3 per gain point.

Each time the S&P ASX 100 gain a point you make £3, but alas, every time the S&P ASX 100 loses a point, you lose £3.

SELL

Times are tough and you are hedging your bets on the S&P ASX 100 falling in the near future due to poor employment statistics and slumping retail sales Down Under.

You sell the S&P ASX 100 at 3601 and bet £3 per loss point.

Each time the S&P ASX 100 loses a point you make £3, but alas, every time the S&P ASX 100 gains a point, you lose £3.

Worried about how much you could lose?

Never fear, you can choose to place a “stop loss” on your spread betting account so that, when your losses reach a certain value your bet is cancelled and you can lose no more.

There is no doubt that betting spreads is risky. You need to ensure you are willing to suffer losses as well as welcome in gains.

But with some practice and industry knowledge spread betting could be a very lucrative option for you .

Good luck!