Did you hear somewhere the word spread betting? Are you looking for the best spread betting brokers? Wondering? What spread betting forex is? Is it very complex to understand?
Spread betting is gaining popularity and becoming lucrative day by day. It sets off much more active when the market is a bit more volatile. More companies and individuals are getting attracted to it over the last few years. That’s why it becomes crucial to understand the insights of spread betting if you want to be a trader or anyways interested in the financial market and instruments.
Let’s get started with the basics first.
What is Spread Betting?
Spread betting is a way of speculating over the massive range of financial assets and markets. It is a top-rated tax-efficient derivative product. You don’t have to take ownership of the underlying asset; instead, you try to make an accurate guess over the movements of prices of the financial market instruments, such as forex, commodities, shares, bonds, etc. You ‘bet’ whether the prices would go up or down. If rates go in your favour (as per your prediction), you’ll earn a profit. Similarly, if the price moves against you, you will incur losses.
Remember, not to confuse anytime spread betting with forex trading. These two are entirely different terms and carry different meanings. To make you a little clearer on this, let us compare and understand both of them separately.
Forex Trading v/s Spread Betting
Forex (foreign exchange) is exchanging of currencies between the two countries. And, when a network of buyers and sellers trading currency for any purpose such as travelling, importing, exporting, earning, etc., would be called forex trading.
While spread betting does not involve any ownership of the underlying assets, it consists of doing speculation on the dynamics of any country’s currency or financial asset without actually transacting.
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It’s time to move further and understand the significant terminologies and components which you should be aware of, to bet easily.
Terminologies
- Long Trade: Spread betting is basically speculating over the movement of prices. And, if you predict that the price of a particular asset will go up, then you buy the asset and profit, or go ‘long.’
- Short Trade: Similarly, if you speculate that the prices would go down, then you go ‘short,’ i.e., sell your asset or avoid losses. Remember, preventing injuries is equal to making profits.
- Margin: As we told you earlier, spread betting is a leveraged product. Thus, you do not need to deposit the whole amount; instead, you just need to spend a small fraction of the total transaction or value of that trade. This small fraction is called a margin.
Essential Components of Spread Betting
Spread betting is a vast field in itself, but there are mainly three components involved in it. These are:
- Bet size: When we spread bet, we make speculations over the movements of prices of assets or currencies. That movement gets measured in points. The bet size is the amount (which you decide) per point of action of currency or any asset, upon which you are trading, such as €10 per point.
- Spread: The difference between the buying and the selling price is called a spread. It is essentially the cost of the trade, or you can also call it as commission
- The direction of trade: The speculation which we make about the movement of prices, i.e., whether the prices will go up or down. These up and down are the direction of the trade. And this direction decides whether you have to go short or make long trade with the financial instrument.
- Bet Duration: The time before your position expires in the market is called bet duration.
Now that you seem utterly aware of basic terms and components related to spreading betting, we can move further on how this spread betting works.
How does Spread Betting work?
First, to start betting, you’ll need a spread betting trading ticket. These tickets will equip you with the option to either go long (buy) or go short (sell), with the currency or asset.
And again, you will predict the pace of the price of the asset. If the price goes up, you will open a long trade position. Similarly, if the prices go against you, you should open a short trade position.
As you must have understood, the bet size is significant in all these transactions. The higher the bet, the better the amount of profit or loss.
As the points of your asset move up (or down), each point change multiplies by your bet size. The outcome would be your profit or loss.
Don’t worry!!! To clear all your doubts, here is a fantastic example of spread betting.
Example
Let’s assume an XYZ company is trading in the market at a selling price of 100 and a buying price of 110. Hence, the spread is 10 here.
Now, let’s say you speculate that the prices of XYZ are going to boom in the next few days. So, you decided to place a spread bet on XYZ at a ‘bet size’ of €20 per movement at the buying price of 110 before the market closure.
If, as per your expectations, the prices of the companies go up and close at 150/160 (selling/buying price). Then, as the market increases by 40 points (150-110), you would earn a profit of 40x€20, i.e., €800.
Similarly, if the market of the XYZ Company closed at 40/50, then the prices have moved against you, and the speculations went wrong. Now, you would suffer a loss of 70 points (110-40). Then, this 70 point loss multiplies by your bet size, and your actual loss amount gets calculated. In this case, it is 70x€20, i.e., €1400.
Spread Trading Forex
If we talk about spread trading forex, it also doesn’t involve the need to own any currency. But, you will still need capital in your trading account in which the profit or loss would be credited or debited. Also, you need the currency of the country as per the location of spread betting services. For example, a spread betting firm in Japan would require the Japanese Yen as capital.
It is a type of spread betting, and it requires a little more knowledge about the basics of forex. You first need to learn the terms like bid, ask, quote currency, etc. You can get all the insight into understanding forex here.
If you think you are now ready for spread bet trading, then do not fall for this psychological trap. Trading is much more than understanding the terminologies and functionality of how does it work. There are several other factors involved too. We would strongly suggest you give this article a read and then start betting.
For skillful, knowledgeable, and believer of intuitions investors, there is a lot to learn. Our experts, having years of experience in similar fields, have personally shortlisted these platforms, exclusively for you. Let’s give them a read.
5 Best Spread Betting Platforms for Beginners
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City Index:
If you know anything about spread bet trading, then you must have heard about this platform. City Index is a top-rated platform with over 1000+ assets, access to 12000+ global markets, and a fantastic range of tutorials for education. Not to forget, it got voted as the best spread betting service provider in 2017. You can also switch between assets (in case you change your mind) like CFDs. But, remember that not every asset is tax-free.
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SpreadEX:
Working for two decades, it is also one of the most reputable spreads betting platforms. And when working with them, you don’t need to worry about customer support because they got awarded for their 24-hour assistance. FCA FCA and trade in forex regulate it, shares, crypto, and many other financial instruments.
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Avatrade:
Based in Dublin, Ireland, here comes another fantastic broker. Since 2006, this international trading platform could also be anyone’s top pick. Their innovative, varied, and exciting range of assets makes them better than any other broker.
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CMC Markets:
Established in the year 1989, this multi-asset broking firm can also be a good option for spread betting. High-level safety and security, 9000+ trading financial instruments, and different trading accounts at a time are just some of the features. Try this one!!!
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IG Markets:
It is one of the biggest trading platforms based in the UK. This broker has a variety of assets. Here, investors can trade CFD, forex, spread betting, and can also speculate over hundreds of financial products available with them. This leading global broker not only rules the market but also has a comparatively low fee.
So, these were the best spread betting brokers. You can anytime register with them and start speculating. Now, we need to take leave, but, before that just read this last but not the least lap of this article.
Final Say
The spread betting is entirely uncertain and involves a significant amount of risk. Most people fall for this and end up losing. Our suggestion would be, first, make yourself educated; then, after proper analysis, start spread bet trading. Your work as a trader is to maintain predictability in this dangerous and chaotic financial world. Opt for the right broker and utilize the resources efficiently to get this game in your hands.
At Last, We Would Say,
Best of luck!!!
