Spread betting may sound like a daunting prospect, but it is exceptionally simple once you cut through the jargon. All you need to do is “buy” if you think the market will rise and “sell” if you think the market will go down. If you place a £1 buy on the FTSE 100, all this means is that for each point it goes up, you will earn £1. Using the example above, if you place a £1 trade on the FTSE when it was at 6000, and you closed out at 6100, you have made £100. Now imagine if you had placed a “sell” bet before the stock market crashed in 2010!
When you spread bet, you are not placing bets on the markets themselves, in effect you are betting on markets created by spread betting firms. You shouldn’t let this put you off spread-betting, as these markets track real indices, shares, interest rates, commodities and currencies so the same influences apply. You can prepare yourself in the same manner as you would when investing in other more “traditional” ways.
There are two important points to remember, your £1 bet may sound piecemeal but spread betting is a leveraged investment so you are risking much more as some markets can move hundreds of points a day. You can limit your total risk by placing stop losses. The second point is don’t be fooled into thinking spread-betting firms are out to take your hard earned cash! Most firms hedge the bets they take so they earn their profits from the spread, this means both you and your spread-betting firm could be making money from your trades.