What is Financial Spread Betting
Financial spread betting is extremely flexible way to take advantage of up and down markets via short selling. In volatile markets such as those seen in the past few years, financial spread betting gives individuals opportunities to prosper regardless of the direction the indices take.
Financial spread bets are placed with a broker who serves like a bookmaker, quoting a two-way price or spread. For example, the broker might quote the FTSE 100 at 4300~4302. A customer can then bet the market either way, going up or down, with an associated cost per point.
In this case, a spread bettor expecting the market to rise would buy at the offer price of 4302. One believing the market will drop would sell at the bid price of 4300. The risk either way would be £1 a point. If the market rallies to 4312, the buyer would sell out at 4312 - 4302 = 10 x £1 a point or £10 in profit. But the seller would lose 4312 – 4300 = 12 x 10 x £1 a point or a £12 loss. The broker pockets the difference, £2, and there is no need for anyone to pay a commission.
When a £10 bet is placed on a horse race at 8-1, the maximum profit is fixed at £80 and the loss can be no greater than £10. For financial spread betting, nothing is fixed. Both profit and loss are open-ended, so a rise or fall in the FTSE 100 of a few percent can translate into £100's won or lost.
A market order is an instruction to buy or sell at the current price. A limit order can be set to sell at a certain point above the current market or buy if it drops below a given value.