Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Spread Betting in Financial Markets

One of the basic principles that stand behind the decision-making process of any financial market’s participant is the risk/reward trade-off, which determines the profile of the participant and helps him to identify the most suitable instruments to use in order to generate profits. Luckily, the evolution of technology has created a wide range of instruments that go far beyond the more traditional stocks and commodity futures. This has created a new type of market players, in addition to traditional investors, who are called speculators and who trade on different instruments with a higher-than-average risk, but can in exchange obtain profits that are considerably larger than those reaped by lower-risk stock market players.

One instrument that has recently become available for speculators who are looking to obtain large gains in short-term is financial spread betting. Spread Betting has actually existed for a long time and has been available as wagering at other events where the pay-off is based on the accuracy of the predicted results. For example, in sporting events there is a range of possible outcomes on which people are betting (called the spread) and spread betting allows to bet on whether the actual result will be above or being this range.

In financial spread betting, speculators are betting on price movement of a stock, index, commodity, currency, etc. As brokers quote two different prices for buying and selling (bid and ask) and the difference between these two prices is known as “the spread”, spread betting involves wagering on either the price will go above the bid price or below the ask price.

stock, market, buy, graph, risk, trading, dice, concepts, chart, objects, investment, opportunity, business, three-dimensional, horizontal, line, gambling, decisions, symbol,


Even though spread betting is considered a speculative way to make profits, some betters can actually use traditional analysis to increase their odds of winning the bet. Betters can identify resistance and support levels of a stock in order to understand the best level to cash out, or they can follow the news and place their bets based on the price movement that it expected to follow them.

Some traditional and more conservative traders can argue against spread betting, one of their main reasonings being the high level of risk, since spread betting does not have any underlying security. However, despite the risks, there is a number of advantages, which helped to push spread betting to become a very popular instrument in some countries, such as the United Kingdom, which is currently one of the largest markets for spread betting. First of all is the low barrier to entry (and low initial investment requirement) since spread betting does not involve any exchange clearing, and the transactions are made only between betters and the company that makes the market. Betters also have access to a wide range of markets, such as stocks, currencies, commodities, with some companies going as far as allowing bets on the movement of house prices. Aside from using strategies to maximize the chances of winning a bet, traders can also use either regular or trailing stop losses in order to minimize their loss. Therefore, a smart approach to spread betting can turn it into a solid income stream. And here comes one of the best aspects of spread betting: since it only involves two parties (the trader and the market-maker) it is very loosely regulated and doesn’t require to buy an actual underlying security, which in some countries (including the UK) means that profits obtained through spread betting are not subjected to tax payments.

The bottom line is that spread betting is a much easier way to tap into multi-trillion markets than traditional securities trading and even though it is a a riskier-than-usual way to generate money in financial markets, with due diligence and some research there are many ways to counteract those risks.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.