Spread Betting Guide

Financial spread betting is the fastest growing method of investing in the stock market in the UK today.  A little knowledge and understanding into how this instrument works is vital before attempting to bet.

Many people are warned against spread betting as being too risky.  This is certainly the case when there is a lack of understanding of how spread betting works and how it can make money for you.  But the risk is no greater than investing in any other stock market instrument when you apply the information obtained in Malcolm Pryor’s book.

There are amongst others, two major benefits to financial spread betting. 

Firstly, under current UK legislation, all winnings are free from income tax and capital gains tax.  This is the case for those betting in the UK and those who are subject to UK tax laws.  Spread betting is also available in Canada, Australia and EU countries and you will need to check the regulations in your own country regarding tax.  Unfortunately the USA does not have spread betting although some companies may be willing to open an account for you.

The second main benefit is that money can be made in a falling market (even a recession) as well as a rising market.  This is done by ‘shorting’ where you bet on the price of the underlying share to go down rather than up.  Again, all is explained in this book.

So what is spread betting?  Spread betting is, in a nutshell, a way to bet on whether a share price will go up or down.  If you think it will go up you ‘buy’ an up bet.  If you think the price will go down then you ‘sell’ a down bet.

The way you make money is when the share price does indeed head in the direction you decided it would.  For example, you investigate Rio Tinto and decide that you think the share price will go up.  It is currently trading at 600p and you think it will at least go to 630p.  You decide to put a 50p bet on the price of Rio Tinto (RIO) going up.  You get a quote from your computer screen and it gives you 600p to buy and 590p to sell.  This means that if you’re going to place an up bet on Rio, the price you get is 600p and if you’re going to sell Rio then the price you get is 590p.  You decide to buy in at 600p and place your 50p bet.  To be able to make a profit the sell price will need to move above 600p.  As soon as it does start moving above 600p you start winning an extra 50p for each penny it goes up past this point. 

If we decide to exit our bet when the sell price is 630p (ie it made our target) then we will have made a profit of £15.  Hardly going to make you a millionaire but remember we only placed a small 50p bet.  If we’d used £2 per point we would have made £60 and at £5 per point we would have made £150.  Now you begin to see where the money can be made.

But don’t start thinking about putting £10 on and making £300 just like that.  The amount of money you use to bet is also a critical point.  Use too much of your capital and you could soon see it dwindle away in the first couple of bets if they go the wrong way.  Don’t forget the price goes down as well as up and the amount you lose isn’t just your 50p that you bet.  If the price goes in the opposite direction to the one you wanted, you lose 50p for every penny the share price goes down.  So for example, if the price goes down to 570p then you would make a loss of £15 on our 50p bet, £60 on our £2 bet etc.

The way to prevent this type of loss happening is to firstly use a small amount of your capital (typically up to a maximum of 2%) and to place a stop loss.  A stop loss is exactly what it says on the tin.  It stops you making a loss.  If you have a tight stop loss then the amount you lose is smaller than it would be if it was a greater distance away from your entry point.

So you see, with a little knowledge you can already see the potential of spread betting and how you won’t lose all your money.  All you have to do now is read Malcolm Pryor’s book which will be your spread betting guide to making money.  Click here to purchase now.