Spread Betting and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 56.7% of retail investor accounts lose money when trading Spread Betting and CFDs with this provider. You should consider whether you understand how Spread Betting and CFDs work and whether you can afford to take the high risk of losing your money
You can open a buy or sell spread bet with the click of a mouse. All you have to do is choose your market and wait for it to reach the level where you want to buy or sell. If you prefer, you can leave limits or stops with us, then there’s no need for you to watch the markets constantly. You can close a bet by taking the opposite position at any time after you’ve opened it.
The great thing about spread betting is that it is perhaps the most straightforward way to speculate on financial markets. It allows you to follow your own judgement on whether the price of an asset will rise or fall. It’s also one of the cheapest.
With spread betting, you don’t actually buy the underlying asset you want to trade. You just take a view on the prices offered by a spread betting provider, such as Spread Co, as to whether the price will rise or fall. As you don’t have to buy the underlying asset, spread betting providers allow you to trade on “margin.” What this means in practice is that you only have to put up a small percentage of the value of the underlying asset to control a large amount of it. In other words, you are dealing with leverage. As a result, your potential profits are magnified, but so are your losses. For this reason, great care must be exercised in spread betting.
Let’s consider the FTSE100 (the index of the top 100 UK companies by market capitalisation). Spread Co is constantly making a dealing spread, or quote, on the “UK100”, based on the underlying FTSE index. This quote consists of a bid (selling) price and a, slightly higher, offer (buying) price.
The spread between the two can be as narrow as 0.8 points, which means that Spread Co’s charge for opening and closing a spread bet is one of the lowest available. Let’s assume that you get a dealing quote of 6221.1 to 6221.9 – this means that you can “sell” at the lower bid price of 6221.1 or “buy” at the higher offer (or “ask”) price of 6221.9. The difference between the two prices is the spread, which is one of the two charges involved in spread betting (the other charge is called the financing adjustment). The spread is always there, wrapped around the underlying market price. You pay half of the spread when you open the bet and half when you close it.
Let’s say you think the index will rise, so you “buy” £1 per UK100 point at 6221.9 – it’s very important to understand exactly what one point means, as it varies across different financial instruments. As far as the UK100 is concerned, a point is 1.0, so if you buy the UK100 at 6221.9 and subsequently sell it at 6222.9 (in other words when our spread on the UK100 is 6222.9 – 6223.7), that is a full point. Consequently, in this example, for each point the UK100 goes up, you will make £1.
Weather you buy or sell in spread betting markets can move very quickly sometimes, especially if a significant event happens or an important piece of financial data is released. Fortunately, there’s absolutely nothing to stop you closing your bet within seconds of opening it. At the same time, you can leave bets open for days, weeks, months, or even years in some cases. This is a good indication of how quickly you can buy and sell in spread betting.
Let’s say our UK100 rises to 6265.4 soon after you open your position and you decide to close out your bet – your profit will be £43.5 (6265.4 – 6221.9 = 43.5 x £1). The beauty of spread betting is that you can speculate on a market (including individual company shares) falling as well. So if you thought that the UK100 was set to go down in value, you could have sold at 6221.1.
Spread Co is an execution only service provider. The material on this page is for general information purposes only and nothing contained herein constitutes (or should be taken to constitute) financial or other advice which should be relied upon. It has not been prepared with your personal circumstances, financial situation, needs or objectives in mind, therefore any actions taken or not taken by any person on the basis of this material is done entirely at their own risk. Spread Co accepts no responsibility whatsoever for any such actions, inactions or resulting consequences. No opinion expressed in the material shall amount to (or be taken to amount to) an endorsement, recommendation or other such affirmation of the suitability or unsuitability of any particular investment, transaction, strategy or approach for any specific person. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. As such, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research. Nonetheless, Spread Co operates a conflict of interest policy to prevent the risk of material damage to our clients.