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Spread Betting With Shares

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8 Reviews

What is spread betting with shares? How does it work? What advice can you give those considering this form of investment?

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      24.06.2010 10:58

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      i had alot of prolems my self with worldspeads.they put trades on with out me knowing on several times and refused to pay my profit to me saying the price wasnt adjusted.i am contacting the financial ombudsman.be ware of cowboys

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      18.05.2010 11:35

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      I agree with Lisa about WORLDSPREADS the staff are rude and ignorant about the terms and conditions on their website , if you challenge them they say the terms change all the time , but worldspreads does not bother to update the website or inform customers. Their made loads of money by closing down all my open positions without contacting me about the margin call ,on their website the terms of margin call is completely different to what they follow. Therefore DO NOT USE THEM is my strong advise. I will take this matter to Financial Ombudsman Service and to the press if necessary.

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      06.03.2009 22:09
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      A Useful Tool If You Know What You Are Doing And Are Careful

      Spread Betting on shares is essentially like gambling. Instead of gambling whether a horse or dog will win a race you are gambling on whether a share price will go up or down.

      There are several companies that offer spread betting on shares, most of which is now done on line. Amongst them are (in no particular order, and there are many others as well), City Index, CMC Markets, GNI Touch, IG Index , Spreadex and Finspreads.

      When you spread bet on a share price you are given a two way quote that offers you a buy and a sell price. You then choose whether you want to buy or sell. If you buy you want the price to go up and if you sell you want the price to go down. It's as simple as that really.

      You also specify a quantity (or size) of your bet which will be expressed in pounds per point (pounds per 1p of movement in the share price). The amount you are prepared to bet per point will depend on your means, how confident you are about your view on the future price movement and how much risk you are prepared to take.

      The main advantages of spread betting on shares are:
      You only pay margin on your bet, not the full value of the share price.
      You can do a sell bet on many, but not all shares, if your view is that the share price may fall.
      You can leave automated stop loss, stop win and trailing stop loss/win bets to be transacted.
      You can use spread betting as a hedging tool against existing traditional share/unit trust/equity holdings
      You do not have to make share dividend payments on sell bets.
      There is no capital gains tax to pay.

      The main disadvantages of Spread Betting on shares are.
      You can only close your bet with the spread betting company that you opened it with.
      Spread Betting contracts are time limited so you will incur rollover fees if you wish to run your bet past the expiry date of the contract.
      You do not receive share dividend payments on buy bets.

      In summary spread betting on shares is exactly like gambling in most instances unless you are using it as a hedging tool or on a purely professional basis.

      Of course only ever speculate with money that you can afford to lose.

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        11.02.2009 15:06
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        Spread betting can make you money but do it informed, remember it is ineffect betting so be wise!!

        So what is spread betting, well I'm doing it right now on a screen behind this review. I will attempt to provide an overview of the principles of spread betting and my experience of it for you.

        * Financial Spread Betting *

        Spread betting is a way of trading on a financial market (I trade on three european markets) or a product such as a share or a commodity without actually owning the share. As an investor it allows you to bet on whether the price of say a market or commodity will go up or go down in value.

        If you think a particular market/share will rise in value then you'd buy into it (this is called going long) and the aim is that you then sell it at a higher price. If however you think the market will fall in value, then you get in there and sell it first (this is called going short), and buy it back at the cheaper price. My husband and most of my friends don't get it (they think I'm a genius and who am I to enlighten them otherwise lol) but it is quite simple once you understand it and I'll give an example of a trade shortly.

        Your profit or loss will be the difference between the price at which you buy and the price at which you sell. You don't own the shares when you spread bet you are betting solely on the price movements. You can therefore make a profit from a falling market if you are selling as well as a rising market if you are buying although I have to admit it's much nicer and better for ones conscience when you make a profit from the market value going up!!

        * How it works *

        For example you are spread betting on the FTSE 100 market (I trade on markets rather than shares of a specific company but it works the same way). For every point the market moves in your favour you win multiples of your stake and for every point it moves against you, you lose multiples of your stake. You can choose the value of a point when you place your order. A point can be worth a minimum of £1 but can obviously be much higher (providing you have sufficient funds for the trade more to come on that shortly).

        As I type this the FTSE 100 is at 4213. So say I want to place an order to buy (go long) at £2 a point. I will set my markers (these are your limits of how much you are prepared to lose or gain in this trade) for the purposes of this illustration I'll say I want to make 20 points profit (£40) and I'm only prepared to make a loss of 10 points (£20).

        NEW ORDER
        Instrument - FTSE 100
        Type - Market
        Amount - 2 £/pt (2 pounds a point)
        The currently value shows on the screen i.e 4215 (sell price was 4213 buy price is 4215).
        Then you select sell or buy - Buy
        It asks you to confirm your order by placing it and it's done.

        I'd then place another order with my markers so that when the value of the FTSE hits either 4235 my limit price or 4205 my stop price the second order would come into effect and take me out of the trade with either a profit or a loss, hopefully a profit.

        NEW ORDER

        Instrument - FTSE 100

        Type - OCO (This is an order cancels order - if the limit order is activated it also removes the stop order created at the same time very important!! - You could also just place a stop order so that it will take it out at the maximum loss you are prepared to take and you watch the market yourself and manually sell when the value has gone up sufficiently. The market does fluctuate though so it's in my opinion more risky although it can be fruitful if you're not greedy. If you do this make sure you cancel your stop order when you come out of the trade manually.)

        Direction - Sell (I'm buying in this example so when the value of the market hits my markers I want it to bring me out of the buy trade by selling it back either for more or less money than I bought in to the market for).

        Amount - 2 £/pt

        Limit price - 4235

        Stop price - 4205

        Duration - GTC (I use this function which means good till cancelled. This order will run until it's activated unless I chose to close it early).

        Then you just confirm your order by placing it and it's done and will come into effect when the market value (or share value as applicable) hits one of the markers.

        You can also place GSO orders (guaranteed stop order) which as the name suggests will guarantee to stop your trade at the stop price limit. This means if you left a trade going over night and then when the markets opened in the morning it had gapped significantly (i.e it was 4208 when the market closed but when it opened it opened at 4190 well below your stop price) instead of loosing a lot more than you were prepared to before the stop price order could be activated the GSO would sell the shares at the original stop price so you wouldn't loose all that extra money but this does cost extra to set up and a GSO order can not be placed in the last hour of trading. There may also be a ratio percentage of the value of the market which calculates your minimum stop price which may be more than you are prepared to loose when using this function, on the positive side if the market gaps in your favour you end up earning more than you set out to!!

        As you can see if my trade hit my limit price marker another order would come in effect and sell my trade back for £2 a point. I'd therefore have made £40. If I had traded at £5 a point I'd have made £100 but could have lost £50 and so on. The value you set your point at in any trade is dependent on how much funds you have available in your trading account and how much money you're prepared to loose and what you would consider a worth while trade to make a profit on.

        Funds in your account is obviously necessary when your trading. When you have a trade running your actual available funds will be lower as there will be an amount put aside for your margin.

        Spread betting is a leveraged product which means that you only have to put up a percentage of your total exposure to the market this figure will show as your margin.

        For example I've currently got a trade running on a German Cash market. I'm selling (going short) at £2 a point with a limit marker of 60 points, a stop marker in this instance of 30 points. My margin amount for this trade is £80 (which is 40 points).

        It will cost you a different amount to buy into the market/shares than to sell and this difference is the commission/fee that the brokers make, various markets will have different prices. For example the FTSE 100 was at 4213 this will be the sell price to buy price was actually 4215.

        * My experience *

        I work full time from home managing a trading plan for a client on three European markets. Obviously I can't go into details of his plan as that would be unprofessional he has spent a long time working it out and half a year paper trading before he approached me to trade for him.

        There are lots of ways and means to trade over the phone, online, a package on your computer (which is what I run) and you can also have bets set up automatically but my client wanted someone to watch the market all day which is what I do.

        I start work at 8am and finish when two out of the three markets I trade on close at 4.30pm. Part of the plan I follow is to review what the markets do every 10 minutes and based on what has happened I'll either put in an order for a trade or do nothing. (That's why I have time to sit and write reviews in between trading or wash up, iron, read etc obviously I'm actually on dooyoo reading reviews lol).

        Obviously I get paid to sit here all day and watch the markets. If you are doing it for yourself you will need to consider how and when you'd trade, do you have the time to sit and stare at your computer all day and watch the markets or would another option be more suitable.

        This last month has been quite turbulent at times. On Friday I made over 400 points in profit but yesterday I lost 150 points. Personally I've found from the plan I'm following that we start off with a pot of funds it goes up a bit then down a lot then back up a lot and at the end of last month we ended up pretty much in the same position. This is partly caused by the markets yo-yoing up and down so my limit (profit) markers never quite hit before I change the trade...very frustrating!

        Of course your experience may well be different as it will depend on your own plan, the markets or companies you spread bet on etc.

        You can make a profit and the more money you have in your funds account the more money you can make a point worth. For instance say our plan is to trade at £3 a point but in a years time we would be able to trade at £5 then £10 a point so you can rapidly earn lots of money but obviously loose lots as well. A trade I carry out today at £3 a point might be worth £120 but if in a years time trading at £10 a point it would be worth £400.

        I normally average from around 4 trades up to 15 trades a day across the three markets I watch, this is very dependent on the market though and there are no obvious times that you'll place a trade or patterns of when your trade will hit it's markers.


        * If you're thinking of spread betting *

        Research your markets. Once you've found a market your interested in watch it and I'd recommend paper trading it for a while to see how it runs what its average rises and falls are. If a market never rises much above 40 points before it changes again (they go up and down all the time) then there's no point setting a limit marker of 100 points as it will rarely hit it unless you are in for the long haul. I trade on a day to day basis so want a quick turn around in trades.

        Paper trading is where you follow the market and write down (or put on a spreadsheet) what trades you would have done and then you can see if you'd have made a profit or a loss. It's a very good way to get to grips with the market and how it behaves (although they can be unpredictable and erratic especially in the current climate). This will also help give you an idea of realistic profit and loss markers to aim for.

        If you are seriously interested in having a punt a spread betting then there are courses, books, magazines and seminars available to help you understand spread betting and work out your own trading strategy.

        For instances CMC Markets offers free seminars and webinars to help you learn about spread-betting. I also recently saw on their website that they would give you the opportunity of having a free days trading on one of the FTSE markets any losses you make they'd cover and any profit you make you get to keep, (I think it was no more than £2 a point value on trades though)!!! Unfortunately I can't seem to find it on their site now but if you are able to find this generous offer or a similar one with another company I'd advise you take them up on the offer once you've learnt more about spread betting so that you don't waste the opportunity.


        * Finally *

        Don't bet with money you can't afford to loose!

        This review is meant as an overview and introduction to spread betting. If you've found it interesting and think it may be for you I recommend you investigate it further before you start trading.

        There are many ways to trade and brokers to use. CMC Markets has a great web trading platform as well as one that is installed on your computer (which I use as it gives even more analytical tools although it only works on windows so I have to boot camp my mac book to use it..oh the shame of it!!). I have found CMC Markets to be very friendly and helpful over the phone as well as having a very usable trading platform but I have only used them and there are other companies providing similar services out there.

        I could go on and on but that would take forever and no one would read the review as it would be too long lol!!!

        Here is a list of companies that you may find helpful.

        www.cmcmarkets.co.uk

        www.cityindex.co.uk

        www.igindex.co.uk

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          08.07.2008 19:45
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          Be very careful and don't bet to much

          Any kind of stock-market investment is a bit of a gamble, but only spread-betting is actually classed as gambling for tax-purposes (i.e. no tax) which makes it rather useful, especially for a higher-rate tax-payer. With most investments (e.g. shares) the stake is the total cost of buying the investment so the most you can lose is all of your money, and the profit theoretically limitless although usually small relative to the initial stake, in any one year. With spread-betting you are just betting on the direction of the chosen market, share, index or commodity etc. E.g. you might want to bet £1 per point that the FSTE100 will rise, in which case you will get the number of points the FTSE rises times the £1 stake minus the "spread" between the buying and selling prices quoted when you start the bet. Similarly if you think the price will fall you can bet the other way, or short the FTSE (which has been useful over recent months, making a profit from the falling stock-markets) The potential gains or losses can be huge compared to the stake, for instance if in the previous example the FTSE moved 100 points you could win or lose about £100. Effectively a £1 bet gets you exposure to £5500 worth of FTSE shares (assuming the index is at 5500 at the moment) Most spread-betting companies provide a wide variety of things to bet on from house-prices to currency exchange rates, shares, metal prices and bonds. Unfortunately this is where it gets a bit tricky because if you want to bet on an actual price of something, or a "rolling" price the bet is effectively just for today, so if you want to keep the bet open (to roll it over into tomorrow) you have to pay the spread again, which makes it more expensive, unless you always win on the first day or cancel the bet. I find it better to bet on the value of a "future" - i.e. the price on a certain date in the future for which there may be several possible dates available (e.g. I just made a bet on the Gold October 2008) It doesn't mean I have to wait until October, because I can cancel the bet or use stop-loss or limits to make it automatically cancel. That's enough about what spread-betting actually is and how it works (for more information most spread-betting companies give free tutorials or help pages about how their particular web-site works. See the link at the end of the review) Now I shall discuss some strategies.

          Spread-betting is extremely risky as the name implies, and most spread-betters lose money, but it is possible to reduce the risk involved or to use it in conjunction with other investments to reduce their risk. One general equity trading strategy which is often quoted is to cut your losses and run with your winners. When applied to spread-betting this can be interpreted as using a stop-loss close to your opening price and a limit set a significant distance away so your losses are small and the wins are big. In theory, if you get half of your predictions correct you will win more than you lose. If however you set the stop-loss too close to your opening price you can be correct about the general direction of the market and yet your stop-loss is triggered just by the volatility, resulting in many small losses and occasional big wins.

          To be more analytical about the probability of either the stop-loss or limit being triggered would require knowledge of the volatility of the index or share you are trading. The volatility of the S&P 500 index is published and can even be traded or spread-bet. VIX is quoted as a positive percentage and represents the expected volatility of the S&P 500 index over the next 30 days. Similarly volatility indices are available for various other markets (although not the FTSE indices) Alternatively the variance of share-prices (or their standard deviation) may be easily calculated using a spread-sheet and historic prices. Volatility is important in determining the ideal relative placement of stop-loss and limit in this or any of the strategies below, but it's a lot of effort to try to analyse the data. A simpler approach is to observe past data for the index or share in question and determine what you consider to be a small and probable daily move and what you consider to be a large and improbable move. The probability of a move of any given magnitude in a financial variable is usually assumed to follow a Gaussian distribution, a bell curve, with high probability of small changes and ever diminishing probabilities for large positive or negative moves in the variable. Deviations of more than 3 standard deviations would be considered extremely improbable (this may not be entirely accurate as very large moves caused by market-moving events are perhaps more common than this would predict and are difficult to predict. The so called "Fat Tail" distribution)

          An Alternative Less Risky Strategy

          An alternative trading strategy would be to set a stop loss at a point that is improbable, but affordable (i.e. in the rare occurrence of it being triggered you would still only lose a fraction of your total cash account balance) and set the limit at a point that is highly probable, such that the potential losses are large compared to the possible win, but the probability of the win is significantly larger than the probability of the loss. The probability of a small movement in either direction is far greater than a big move as described above. This results in many small wins and the occasional large loss. The sum of the losses should on average be less that the sum of the wins. It also means you could be wrong a lot of the time, or have no idea about the market direction and still make many small wins triggered by the volatility in the market. This is not a generally recommended strategy, and although statistically correct in that it should on average result in many small wins and very few big losses it involves a lot of work for little reward, but it is a low-risk way of getting into a trade. Monitoring the progress of the bet and then adjusting the parameters allows the winnings to be improved if the market moves in the way you hoped. You will often be in a small winning position and once you are ahead by more than the minimum spread for the index, you can move the stop-loss to a point that guarantees you a win (if you are using "guarnateed" stop-loss. With a standard stop-loss there is a chance the index will gap-through your stop-loss, but the guaranteed one costs more in terms of a larger spread) The limit may then be moved for the possibility of a larger win. This may be repeated if the index moves in your favour. If the market moves against you however, the bet will be closed with a small profit.

          Hedging Strategy

          The only truly low-risk use of spread-betting is to hedge against market falls in conjunction with a long-only portfolio. If you have a portfolio of shares, unit-trusts, investment trusts etc. which is highly correlated to an index e.g. the FTSE100, then every day the value of the portfolio will fluctuate but it would cost a lot in trading charges and stamp duty, to try to trade in and out. If a spread-bet is used to short the index when you perceive the index to be high, using what ever method you prefer. e.g. technical analysis (The easiest example is when the market is range-trading and the index hits a resistance level) The share portfolio will have made you a profit which if the market falls will be wiped out again. The spread-bet will however make a profit as the market falls which can be taken once you perceive the market to be relatively low (e.g. a range-trading market hits a support level). A stop-loss can be used a small distance above the opening price, so if the market continues to go up (i.e. breaks through the resistance level in the case of range-trading example) you will still gain from your existing portfolio. This is a good risk reduction method. It has disadvantages versus a put option or warrant, but the returns are tax-free (although losses cannot be offset against CGT) Another advantage of going short is that you make a profit as the market goes down, but you still get the dividends from the share portfolio.

          Spread betting is provided by many different financial companies, but interactive investor gives a very good service and is easy to use, with low minimum bets (e.g. 50p or £1 per point) and a free 8-week training tutorial:

          http://www.iii.co.uk/spreadbetting/

          Spread-betting is exciting, but don't bet too much as it could quickly cost you a lot of money and always remember to use stop-losses which cancel the bet as soon as it goes to far. I started out with very small bets and practiced for a long time before increasing the stake.

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            09.02.2008 08:52
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            Betting on the markets is for some, but not me.

            Spread betting, or trading, call it what you will, an investment or a gamble, it's not really any better than us sports gamblers, or even poker players. You can lose a lot (as the news has recently lead us to see, a lot can be £3 Billion), by not knowing what your doing, admittedly the banker wasn't spread betting, but was effectively betting on the futures market, which is similar (but instead of buying/selling share prices he was buying/selling futures).

            So how does spread betting work? Well the bookie (or the trader, in most cases with financial bets) will offer you a buy, or a sell price, a hi or a low if you'd rather see it that way. You will be in profit if it turns out to be which ever way you go. For example you may "buy" shares in Morrissons at a spread of 120-125, and you may buy £10 of them.
            What this means is for every penny rise in the share price over 125, you earn £10, nice and easy right? Well no, not exactly, for every penny that it drops beneath 125 you lose £10 (often set to a stop loss, to prevent losses of £125,000 in this case), of course you can (with many traders) stop the bet when you've taken so much losses manually.
            Of course in the above example, if you wanted to "sell", you'd sell at 120, and for every penny the share drops beneath 125 you'd earn £10 and vice-versa.

            As you can see you could effectively earn a fortune, or opposingly, lose a fortune if you didn't know what your doing (so don't take this quick guide with more than a grain of salt), so read up on it properly before you do it. I cannot stress this enough.

            Although I've never actually spread bet with market's, I have spread bet with sports, and found it to be incredibly fickle and not the easiest market to judge whats going to happen. I'd much rather green up on in play football on betfair (as it's easier to do as long as your doing 1 game at a time), but if you know enough about the markets (or even futures) you could stand to make a lot of money very easily (a woman I used to work with had a family member who'd earned £50,000 in 6 months on these).

            As with all gambling, you need to realise when it's a problem, you need to of course not chase losses (yeah I've proven myself to be a hypocrite here many times over), stick to a system (if nothing else it limit's losses) and make sure you know what your betting on.

            If you need any questions answering about betting in general, feel free to ask, or check out the excellent olbg forums at http://www.online-betting-guide.co.uk/forum/ who will be more than willing to answer anything about gambling in general.

            One more thing, any profit you may make is tax free, which is why some people deem this such a way to make a living.

            On epoint about spreads before I finish, the bookie will take the maximum for a stop loss account, out of your account at the time of your bet, this is worth a note.

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              28.07.2007 19:24
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              Some are put off spread betting because they think its risky but put aside these prejudices and....

              Spread Betting – How it Works

              This is how spread betting works. Suppose you want to bet that the share price of Marks & Spencer will rise. Instead of investing, say, £7,000 to buy 1,000 shares at £7 each (paying the broker's commission and stamp duty), you buy a spread bet at £10 a point instead – this means that for every penny the M&S share price rises you will make £10. If the price of M&S shares rises by 10 per cent, your share purchase holdings will show a profit of £700 on your £7,000. But with a spread bet or CFD, your initial deposit 'on margin' will typically have been just 10 per cent of the value of the shares, in this case £700. If the shares then rise by 10 per cent, you make 70 points at £10, which is also £700 -- so instead of a simple 10 per cent return, you've doubled your initial stake. The down side is that if the shares fall by 10 per cent, you lose your entire £700 outlay.

              The Good, Bad & Ugly....

              The taint of ‘gambling’ is probably what puts most people off spread betting, but running a close second is the belief that it is much riskier than normal investing.

              You can see why the idea has taken root. Try investing £10,000 in a FTSE spread-bet with CMC Markets or IG Index, and contrast it with the same amount invested in a FTSE tracker. The spread-betters will use your initial stake as a 1 per cent deposit to open a position that is 100 times bigger. In other words, your £10,000 spread bet gives you £1m worth of exposure to the FTSE 100.

              Suppose the FTSE 100 fell from 4800 to 4752. Those 48 points equate to a 1 per cent drop. Your exposure to the index is £1m, 1 per cent of which is £10,000. That means a 48-point fall in the FTSE would lose you your entire investment. On the plus side, a 48-point rise would double your money. But a 96-point fall over a few days would leave you owing the spread-better £20,000. The same principle applies to CFDs.

              By contrast, a 1 per cent rise or fall in the FTSE would leave your index tracker fund just £100 better or worse off. You are far less likely to lose your head in such circumstances.

              But it's not all bad news. First, spread betting on individual shares tend to have less extreme financial leverage than that offered on indices like the FTSE 100.

              Second, you are in control of the risks you take. You always know the margin (also called gearing or leverage). Therefore, you can calculate the exposure you want to commit to in advance. So choice is not between £10,000 in a FTSE tracker or £10,000 on a spread bet that will give you exposure of £1m. Your choice is between £10,000 in a tracker and £100 on a spread bet, with the remaining £9,900 in a high-interest savings account.

              This second option gives you the same exposure to the FTSE as investing all your money in a tracker, and you get the certain return of interest on that £9,900. However, it is not the free lunch it may seem. Remember that your deposit (in this case £100) is used to gear up the total investment. But you pay for that privilege. Spread betting firms will charge you interest on any position left open overnight. For smaller clients, this will usually be 2 or 3 basis points above UK interest rates.

              An ideal website to visit, to start learning about spread betting is www.financial-spread-betting.com who offer a very comprehensive quick-learning page on their site.

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                12.11.2001 20:55
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                Spread betting is very simple and the high rewards that can go with it are proving very attractive to anyone interested in investment, particularly as you do not pay any dealing costs on your trades, or any taxes on your profits ! Spread betting gives the investor an opportunity to back their judgement on almost any financial market, over a given period of time. All the investor needs to decide, is whether to 'buy' or 'sell' the spread betting companys prediction of a future outcome. In all cases the prediction, known as the 'spread' is represented by 2 figures - Daily FTSE SELL BUY 6300 6306 Th first, or lower figure in the spread (6300) is the one at which you sell when wanting the market to go lower. The Higher figure (6306) is the one you buy when wanting the market to go higher. You then select the unit stake of your choice - whether it is the minimum 2 pounds per point, or the maximum 500 pounds (or anything in between). When the result of the trade is known, for every point by which you turn out to be right, you win a multiple of the stake you choose. Conversely, for every point that you turn out to be wrong, you lose a multiple of your stake. For example - thinking that the FTSE will fall you 'sell' at 6300 for 5 pounds a point. YOu incorrectly predicted that the FTSE would fall below 6300 by market close. You lose the difference between the closing price (6350) and your opening level (6300) multiplied by your stake ( 5pounds). Thus, you lose 250 pounds. Trading on individual shares (as opposed to the whole market) is also very popular. This works in the same way as the market spread betting detailed above (ie. depending on the quoted spread, you bet that the share will be lower/higher than the spread - say at 5 pounds a point. If you are correct, for each penny over/under the spread you win 5 pounds. By its very nature, spread betting in volatile m
                arkets can produce losses as well as profits. Prices can move rapidly against you and can often require you to make further payments to cover these changes in price. I suggest that you monitor the movements of the market in which you are dealing and so understand better the risks before you take a view. Spread bets carry a high risk to your capital. Only speculate what you can afford to lose. Ensure that you are fully aware of the risks involved and seek profesional advice if neccessary. The internet is full of spread betting companys - but try www.finspreads.com. I use them, and have had no problems.

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