If you are reading this, I assume you either have used Spread Betting (SB) or are thinking about using it. If you haven’t heard of it, chances are you will within the next few days. Since its inception in 2018, it has exploded in popularity and now has over a billion users across the world.
And it is easy to understand why. As a trader, you can place bets on the direction of financial markets with the hopes of making a profit. The concept is similar to traditional investing, but with several crucial differences.
First, you aren’t necessarily looking for one particular stock to perform well; rather, you have an entire portfolio to manage. This requires a significant amount of research and analysis before you even start placing bets, and it’s something that takes a lot of time to learn how to do efficiently. Second, you have to consider the risk of losing money rather than just making money. Third, and most importantly, you need to make sure your money is safe. This is where the spread aspect of the strategy comes in. You don’t want to simply risk a few hundred dollars on a single trade; you want to limit your overall financial exposure while still being able to take advantage of short-term market inefficiencies. Luckily for you, we are here to explain everything you need to know about spread betting so you can get started confidently.
The Basics
As with any new strategy or investment vehicle, there are a few key items you need to look out for to ensure you make the right choice and don’t get scammed. First, study the history of the website or brokerage the company operates out of. A good rule of thumb is to avoid any firm that is relatively new; they are most likely fraudulent. Next, look into the spread betting licenses the company holds. This is a short-term license that allows them to operate within specific markets while still offering some protections to investors. Check with the local securities regulator in your country or state to make sure the company is properly registered and licensed.
How Does It Work?
Nowadays, almost all brokerage firms and websites offer some type of spread betting, and for good reason. The efficiency of the marketplaces where you can place your bets is tremendous, which means you can get the pricing right up to the minute without having to wait for the market to adjust.
In general, you put on a trade by first establishing a purchase (or sale) of the financial instrument you are planning on trading, usually a share or a contract for difference (CFD). Next, you set a limit on the amount you are willing to risk per trade. For example, you can put $100 on Liverpool to win in the Premier League and you can set the maximum stake on any one bet to be £10. If they win, you will pay back £90 with £10 in winnings.
Risks
Like any other form of financial trading, spread betting comes with its share of risks. First off, and most obviously, you could lose money. This is why it is important to consider your maximum stake when placing a bet. Second, even if you do manage to make money from spread betting, it won’t necessarily be easy to make a living off of it. Third, you have to consider the fact that you may not be able to get your money out if you need it. This is especially true if you happen to lose.
The Bottom Line
If you are looking for a new way to make money, you should seriously consider spread betting. The market for CFDs is relatively open and liquid, which makes it easy for you to enter and exit positions as desired. Also, the amount you can risk per trade is fairly high, so you can get a reasonably good feel for the efficiency of the market without having to commit a large sum of money. Lastly, many brokerage firms and websites offer very good tools for new and experienced investors alike, which makes it easy to get started and familiarize yourself with the platform.