People are often curious about spread betting (or “spreads” as they are commonly known). Many see it as a way of making easy money, but how exactly does it work? Let’s have a closer look.
The Basics Of Spread Betting
First off, let’s remind our readers that spread betting is not gambling. Rather, it is a form of investment where people are basically speculating on the direction of certain shares, indices, or commodities. Those who are interested in spread betting often do so because they feel that the risk/return scenario of this type of investing is more appealing than traditional forms of investing – such as buying a single stock or placing a single bet on an outside event (like a horse race or football match).
In general, you will find that spreads are easier to understand than complicated forms of derivative investment. This is mainly because the payout of a spread is always very easy to calculate – it is simply the sum of both bets multiplied by the amount of the wager. For example, if you wager $100 on a spread that gives you a return of $150, your profit is $50. This is far easier to grasp than trying to work out the difference between a call option and a put option on a single share.
What Kind Of Returns Can You Expect?
The returns on spreads are, generally, very good. People who spread bet have seen amazing returns over the years and have become very wealthy because of it. One of the best examples of this is Joe Saluzzi of Arizona, USA. He has documented his spread betting success in a really great blog post that you should check out. Take a look at some of his biggest wins and losses from spread betting over the years.
In some cases, you can even make money when the market is down. For example, let’s say you bet $100 on a spread that gives a return of $150. If the market drops but the spread goes up, you will get your $100 back – plus $50 in profit.
This is mainly because most people who spread bet choose to use leverage. When you leverage a spread, you are placing multiple bets (your original bet plus a secondary bet). In most cases, you will need to use a broker that supports spreads (such as Apex or Red Ventures). Having said that, even if you are investing directly in stocks or other corporate shares, you can still use leverage and make money when the market goes up – as long as you are both aware of the risks and are willing to accept them.
How Do You Exercise Your Options?
In some cases, you will need to physically go to the office of the exchange on which your options are listed and “work out” your options. That means you will have to come up with the money to pay for the option and its maintenance in the first place. If you don’t have the money available, you will have to bite the bullet and cancel the order or seek an extension on credit. The last thing anyone wants to do is work out a stock option and have the price change hands in the meantime.
Which Stocks To Spread Bet On?
Most people who are new to spread betting begin by focusing on the traditional buy and sell stocks. These are the kinds of investments that most people are familiar with and can therefore understand the basic concept of placing a bet on the direction of a share price.
People who choose to spread bet on stocks usually do so because they think that the price of a stock will move in a certain direction. This is based on certain assumptions that they make about the world at large. For example, if they believe that the economy is heading for a recession, they will want to short the stock market – and vice versa. In effect, they are trying to time the market and profit from changes in share prices.
What you need to remember, though, is that just because you believe that a stock price will move in a certain direction, this does not mean that all stocks are created equal. For this reason, it is important to do your research into each individual company before making a decision. Keep in mind that some stocks are more risky than others. In some cases, you may want to steer clear of certain industries (like pharmaceuticals or medical devices) or international stocks due to fears of trade wars or other complications caused by international business dealings.
A lot of investors choose to spread bet on indices instead of individual stocks. Indices are groups of stocks that are closely related to each other and usually represent a particular market sector. For example, the S&P 500 Index is a commonly used index that includes the 500 largest companies in the United States as measured by market capitalization. In most cases, the indices are easier to track and manage than the price movements of individual stocks.
When choosing an index, it is important to remember that the returns on most major indices are not very good. This is mainly because there is very high turnover in these markets. In other words, a lot of the stocks that make up these indices are constantly changing hands. When this happens, the prices of these stocks are usually affected and can become unstable.
For example, let’s say you are a long-term bull in the technology sector and believe that this sector will continue to grow in the years to come. In this case, you might want to put your money into the NASDAQ-100 Index – which tracks the performance of the 100 largest companies in the technology sector. This will ensure that you are keeping pace with the sector’s rapid growth. However, even in this case, you should remember that just because a stock price rises in line with an index, this does not mean that you will make money. In the long term, the market can be a very volatile place and you might lose money if you are not careful.
As a general rule, you should avoid sectors and industries with a lot of volatility. To give you some peace of mind, avoid placing your money in these kinds of markets altogether. Of course, this is easier said than done, but if you want to be a successful investor, you have to become familiar with the types of risks that you are taking on – and be prepared to manage these risks properly.
What About Commodities?
A lot of people who are new to spread betting choose to spread bet on commodities instead of stocks or indices. These are the “babies” of the financial world. They are relatively new and a lot of people still don’t know much about them. Let’s have a quick look at what commodities are and why people might want to spread bet on them.
A commodity is an “asset that can be exchanged for other goods or services, and reflects the supply and demand for those goods”. It is a form of ownership of goods that are in limited supply. Commodities are traded on commodity exchanges, which are operated by commercial organizations. Some of the more popular commodities that are currently available include gold, oil, and platinum.
The main reason why people choose to spread bet on commodities is the same reason why they choose to spread bet on stocks and indices. Namely, because they want to profit from changes in the price of these “smaller” assets. Just like with stocks and indices, there is usually a lot of speculation involved in commodities. In general, the price of most commodities can be volatile and unpredictable – so much so that many people choose to simply take a long-term view of these markets.
For example, let’s say you are a long-term bull in the gold sector and believe that the price of this metal will continue to rise in the years to come. In this case, you might want to put your money into the COMEX Gold Trust – which is probably the most popular and well-known precious metals fund. Like with many investments, you will need to do your research into the specific risks and returns associated with this particular product before getting started. In the long term, owning gold might be a good choice as the price of this metal tends to rise along with inflation. However, in the short term, the prices of gold and other precious metals can be extremely volatile and, in some cases, it could lose you money.
How Much Money Can You Make?
This is often a difficult question to answer because there are so many variables that could influence your outcome. However, let’s have a quick look at the general trends and amounts of money that people are making with spread betting.