How Do Spread Betting Companies Make Money?

In our last blog post, we discussed the basics of spread betting. To reiterate, spread betting is a type of “futures trading” in which you seek to profit from the fluctuation in price, often referred to as a “fade” in the case of tennis or golf, or a “stroke” in the case of horse betting. While you may be tempted to jump into the world of spread betting straight away, you may want to consider first learning the ins and outs of investing in stocks, commodities and other financial instruments before venturing into the world of spread betting. Not only will this give you a better understanding of what is entailed in taking up this exciting new way of investing, but it will also instill a greater sense of prudence and responsibility. If you’re looking to get involved in the world of spread betting, then this article will help you navigate the landscape successfully.

Stocks, Options, And Other Securities

Many individuals will be better positioned to take up spread betting than others, depending on their existing knowledge of the stock market. Beginners in the world of investing may be excused for not knowing much about the subject, as there is a lot to learn. It is highly recommended that you study up on stocks, options, and other securities before taking the plunge into the world of spread betting. There are a variety of free resources available online, such as YouTube, which host video tutorials on various topics related to investing. The great thing about these resources is that you can learn at your own pace and in your own time. Consider also signing up for a stock or options email alert, which will notify you of important news and updates regarding your specific interests. Many brokers, such as online brokers, also offer educational materials via their websites that can assist you in getting started.


Derivatives are complex instruments which are used to manage risk. As the name suggests, derivatives give you the ability to “derive” or calculate a value of something based on the price movement of another asset, such as a stock, commodity or index. The two most popular derivatives are options and futures. Let’s take a closer look.

As the name suggests, an option gives you the right to buy or sell an underlying asset at a predetermined price, called the “strike price.” If, for example, you buy a call option on ABC Company, you have the right to buy a single share of ABC Company for a predetermined price, $40, at any time until the option’s expiration date. Most importantly, you can’t lose money on an option, as the price you pay will always be less than or equal to the price of the underlying asset, which in this case is a share of ABC Company. The following table explains the difference between a call option and a put option on XYZ Company:

As the name suggests, a futures contract implies that you are agreeing to buy or sell an asset, such as a commodity or a stock, at a predetermined price on or before a certain date. To give you an idea of how futures work, think of it as a long-term IOU or bond which can be traded on the open market. The two most popular derivatives are precious metals (also known as “metals”) and oil, which are used to hedge against price fluctuations in these markets. For example, if you think that the price of gold is likely to increase significantly over the next few months, you may want to consider entering into a futures contract to profit from the potential rise. This could be achieved by purchasing a call option on gold, as discussed above, or, if you’re feeling extra adventurous, you could go the whole hog and buy a put option on gold. Put options give you the right to sell a metal or commodity, at an agreed-upon price, for a predetermined amount of time, usually one year or more. Most people prefer writing put options, as you have the ability to be creative with the terms of the contract, whereas calls must be met exactly, otherwise you have the risk of getting a “strike” (sometimes called a “futures position”). Below, we will discuss the basics of commodity options in more detail.

Creative Leads You To Success

One of the great things about the world of investing is that it provides you with a variety of options, allowing you to find a path to financial success. By understanding the ins and outs of stocks, options, and other securities, you will be able to choose a course that is suitable for your existing knowledge base and interests. For instance, if you have experience with stocks but less experience in areas such as futures, you should choose the former, as this is likely to provide you with the greatest opportunity for profit. Alternatively, someone with a strong knowledge of options may want to consider branching out into the world of spreads, as options can be used to profit from a wide array of situations.

The Pros And Cons Of Spread Betting

Now that you’re somewhat familiar with the basics of spread betting, you may be wondering whether or not to take up this exciting new way of investing. While there are many advantages to spread betting, there are also some pitfalls which you should be aware of before entering this exciting new world. One of the main pros of spread betting is that it can be a highly effective way of investing, provided you do it right. As the markets fluctuate rapidly and continuously, making it difficult to keep track of the various prices, spread betting gives you the ability to get involved at a micro-level, ensuring you make the right investment at the right time. Another great advantage of spread betting is that it provides you with a variety of instruments, enabling you to find a profitable strategy for nearly any situation. If, however, you choose to go down this route, you should be prepared to learn a new set of investing tools and techniques. Fortunately, this is a skill which you can learn and implement.

Some of the downsides of spread betting are quite similar to the upsides. For starters, spread betting is a highly speculative investment vehicle, meaning that you are putting your money on the line. As the markets fluctuate rapidly and prices can change frequently, it’s easy for your investment to turn into a Ponzi scheme or similar risky activity. Another major downside of spread betting is that, since it is such a new and developing area of investment, most brokers and financial experts don’t fully understand it. As a result, it can be difficult to get the best deal for your specific needs. Furthermore, most brokers provide fairly minimal education on the subject, leaving you to figure out the ins and outs on your own, which isn’t always a good idea. Last but not least, the sheer volume of information which you have to keep track of can be a major challenge, especially if you’re a beginner.

Taking up spread betting may seem like a daunting task, especially since it’s a completely new area of investment. However, it’s very rewarding, as you have the ability to find a profitable strategy for nearly any situation. Just remember to do your research and educate yourself on the subject before entering the fray, otherwise, you may find yourself in over your head, with no way of climbing out. With a little bit of luck and some careful planning, you may find yourself making a lot of money in the world of spreads, provided you do it right.