Spread betting is a convenient way to take advantage of opportunities available in the marketplace. It can also be a quick way to lose money, but why this is the case will be explained later.
When you spread bet, you are not physically dealing in the underlying asset that you are speculating on. For example, if you enter into a spread betting contract for Brent oil, you are not buying or selling oil; instead, you are effectively taking a bet that the price will go either up or down ufabet.
Let’s assume you are still interested in learning how to spread bet. To get started, all you have to do is to open an account with one of the various spread betting companiesout there like FinancialSpreads.com and IG Index, beware though that accounts are subject to status. Look for a firm that receives good reviews for its customer service, which has been in the market for a number of years and is authorised and regulated by the Financial Services Authority. That way you can be fairly sure your deposits are safe.
The good news is that, with spread betting, you do not need to possess the full amount that you are trading with. You only need to put down a small deposit, sometimes as little as 1% of the amount you are speculating on.
Let us say you believe the Barclays share price will increase in the near future, so you obviously want to buy the Barclays market. Let us further assume that you only want to deposit 100. Thanks to leverage, with a 100:1 bet you can ‘buy’, ie have exposure to, 10,000 of Barclays shares.
The double-edged sword comes in with the fact that you are then exposed to the full market fluctuation of that 10,000. If the shares were to increase in value by 1%, you would make a profit of 100 and would have doubled your initial deposit of 100. On the other hand, if the price of the shares were to fall by 1%, you would lose 100, which is the full amount that you initially invested, equating to a loss of 100%, if the share price fell by 2% you’d lose 200 etc.
If you only have 100 to trade with, you obviously do not want to lose everything on a single trade. Knowing how to spread bet successfully involves making proper use of a tool known as the ‘stop loss’. As an example, if you set your stop loss level to 50 at the start of the spread bet, that is the maximum you stand to lose. Although you should note that some stop losses are not guaranteed.
The tricky part is not to set your stop loss too close to the initial price, otherwise the market might go against you somewhat, and the stop loss would kick you out of the trade, before the market could turn around and go into a profit.
Setting the stop loss too wide could be even more dangerous, because the wider you set it the more you stand to lose if the bet goes against you.
Spread betting is a leveraged investment product, it involves a high degree of risk to your funds and can result in losses that are greater than your initial investment. Spread betting may not be suitable for all types of investor. Before you trade, make sure you are fully aware of all the risks involved. Ensure that you only speculate with funds that you can afford to lose. Request independent advice where required.
