Spread betting is all the rage in many parts of the world. A thriving industry in the United Kingdom, the United States is starting to catch up. Fast-paced and online, you can take part in spread betting in the comfort of your own home, even on your phone. But because spread betting is still new and unfamiliar to many people, there are lots of questions floating around. In this post we’ll talk about what spread betting is, as well as its potential benefit for a new investor.
So what is spread betting? Spread betting is an interesting way of making value speculations on the value of a thing. When we see spread betting online, it is typically run through a brokerage platform that takes investments about the future value of stocks, indices, commodities, currencies and other financial entities. A new spread better might be interested in the price of gold, for example. When setting up her bet, she might decide that she wants to bet on the value of gold in exactly one week.
Here’s one of the interesting things about spread betting. It doesn’t require the investor to hit the nail on the head. The investor will get money if the price simply moves in the direction that she guessed. So if she guesses that the price is going to fall, and the price has actually fallen when time is called one week after the investment was initiated, she receives dividends. But there are some more details to understand.
There is a threshold value that the price needs to fall beneath in order for the investor to get earnings. If the investor were to have picked a value increase, there would also have been a threshold value above the initial price of gold. These two values (one low, one high) are known as the spread. It is measured in “pips”. A narrow spread, and there is more “meat on the bone” for investors who correctly anticipated the change in future value. A wide spread, and the price has to change quite a lot in the hoped-for direction in order for the investor to get dividends.
The earnings and losses are also proportional to the amount of value change. If the investor think the option is going to increase in value, and she turns out to be right, the higher the price ended up at the end of the investment duration, the more dividends she received. The same is true for losses. If the investor gets it wrong, then the losses can really add up. That’s why “Stops” are put in place, to limit losses.
Now that you understand what spread betting is, you can decide if it is right for you. Spread betting is unique, in that it does not sell actual assets to investors. At the same time, it teaches users a lot about the value fluctuations of different financial entities. For people who are knowledgeable about things like stock value, it can be a great opportunity to make money quickly. Try a free account with a trusted broker to learn the ropes and see if spread betting works for you.