Spread betting is a derivative strategy whereby participants do not own the underlying assets they bet on, such as a stock or commodity. Spread bettors merely speculate on whether the goods prices will fall or rise by using the prices that they offer to the bettors by a broker. The accuracy of the bets determines their pay-off, rather than a win or loss outcome. The investor planning to use spread betting is only lucky if the stock goes his way making a profit.
The purpose of spread betting is the creation of an active market for both sides of a binary wager despite the consequences of the bet appearing to be favouring one side. A good example is in football bets whereby an active team will be lined up to face a weaker team where one can bet on the more solid team or, the weaker team and a gambler bets on whether the favourite team will win or lose or draw against the weaker team. In spread betting the staking is done on two outcomes only; the price of the instrument rises, or it falls. It, therefore, calls for a keen study of the market trends for one to make a rational judgment on where to invest their money.
The spread betting phenomenon has grown exponentially in the recent years due to some different reasons. The global financial climate in Northern Europe and around the world, hence people are not saving money in the bank, but they are now looking into making their money work for them.
In the stock market trade industry, spread betting quotes two prices that are the sale price as well as the buying price. The spread is, therefore, the difference between the purchase and selling price. This is where the betting companies profit from as this allows the spread bets without using any commissions. The bettor has to overcome this range just to break even on some of this trades. Spread betting has some benefits over conventional trading. Some of these benefits are
• The absence of commissions and taxes free profits on the money made
• Ability to go short anytime
• Spread betting can help an individual get jobs in the finance and banking sector
• Spread betting has flexible hours given the vast array of markets that one can check. One can trade whenever he wants.
• The better has the potential to become financially independent. Not many incomes streams give a person the opportunity to become financially stable at a young age, unlike spread betting.
Some of the dangers of spread betting include; use of leverage which works both ways as a huge amount of money can be made and lost at the same time. The risk of being careless and betting too large quantities from your finances, the bettor can lose more than his original deposit and capital, and the quoted spread does not always remain static as it can widen 2-4 times.
With spread betting, one does not physically buy the goods or instruments but instead the bettor speculates on whether he or she expects the prices to fall or rise. This means that if the bettor thinks that a particular item price will fall, he will go short and if he thinks that the price increase the bettor goes long.Trading spread betting is done on the margins or deposits. Margin trading allows a bettor to do more things with his capital. One can open more and bigger positions than one could open if the bettor had to fund the full capital, however, spread betting using margins can increase the losses as well as the profits.
Betting is very addictive and hence proper risk management tools have to be taken into consideration while betting. Some of these risk management tools include stop loss orders and guaranteed stop loss orders. A stop loss order helps manage the exposure by setting up a price level beyond which the bettor is not prepared to risk any money beyond this position. CMC Markets provide financial services and is one of the leading online trading company which acts as the principal and market maker for its clients for stock. The CMC Markets offer spread betting access to over 9500 markets through its proprietary trading platforms