Spread Betting comes in the form of two distinct flavours; sports and financial. However, the principle of spread betting is the same regardless of the types of market or bets involved.
The spread betting firms quote a spread on the future prospects of a share or index, or the predicted outcomes of a sporting event. The investor/gambler can then decide as to whether they believe the price will rise or fall.
Don't worry if this makes no sense. By the time you have finished reading this short guide to spread betting you will have a good understanding of how spread betting works.
Spread betting is most easily explained through an example. We will use the market of 'Total Freekicks' in a football match as this is easy to relate to. This market is based on the total number of freekicks accumulated by both sides in a game. However, the same principle applies to all spread bets, both sporting and financial.
Example
Match: Arsenal Vs Southampton
Quote for freekicks: 10-11.
The spread of 10-11 for this market states that the spread bet firm believes there will be between 10 and 11 freekicks taken during this game.
Buy Example
You believe there will be more than 11 freekicks (perhaps you think this will be a very dirty game - unsuprising considering Arsenal are playing!). So, you buy £20/point at 11.
Profit: You were right. The final number of freekicks was 15, i.e. 4 more than 11, the number of freekicks you bought at. You win 4 x £20 = £80 (tax free)
Loss: You were wrong. The final number of freekicks was 8, i.e. 3 less than 11, the number of freekicks you bought at. You lose 3 x £20 = £60
Sell Example
You believe there will be less than 11 freekicks. So, you sell £20/point at 10.
Profit: You were right. The final number of freekicks was 8, i.e. 2 less than 10, the number of freekicks you sold at. You win 2 x £20 = £40 (tax free)
Loss: You were wrong. The final number of freekicks was 15, i.e. 5 more than 10, the number of freekicks you sold at. You lose 5 x £20 = £100
You will notice that 'buy' transactions are made at the top end of the spread and 'sell' transactions are made at the bottom end.
So there you go - it may seem complex, but Spread Betting is relatively easy to pick up. Good luck!
