# What Does ‘Mean’ Mean in Spread Betting?

What does ‘mean’ mean in spread betting? Is it related to ‘average’? ‘Profit’? Or does it have a different connotation? The fact is, the English language can be a bit tricky when it comes to defining abstract concepts like ‘Mean’ in particular and ‘Profit’ in general.

So let’s take a look at the English meanings of ‘Mean’ and ‘Profit’ and how they apply to spread betting.

## Average

In plain English, the average is the sum of all the individual values in the group divided by the number of items in the group. In this case, the number of items is equal to the number of shares or contracts that one owns, in other words, the denominator. The resulting value is then multiplied by the number of items in the numerator to give the average. For example, if the denominator is 3 and the numerator is 6, the average is 1.5. This calculation is easy enough to remember as ‘1.5 times 3′ which can be written as ‘1.5 x 3′ or ‘1.5 x 3 = 5 and ½’. Most people will understand what this means when they see or hear it. However, in the context of spread betting, the average can become a bit tricky to interpret. To put it simply, if you look at the average from the point of view of a long-term investor, it will appear very positive. That’s because the long-term investor is purchasing shares or contracts at a low price and then holding them for the long haul. The low price generally means that the underlying value is high which, in turn, makes the average seem very positive indeed.

On the other hand, if you are looking at the average from the perspective of a short-term trader, it will appear very negative. That’s because the short-term trader is purchasing shares or contracts at a high price and then selling them as soon as possible for a profit. In this case, the high price generally means that the average is going to be relatively low which, in turn, means that the short-term trader will suffer a substantial loss.

## Profit

This one is pretty self-explanatory. Profit is, generally, what one is after in the context of investing. A profit is what remains after all costs are subtracted from revenues. In spread betting, the costs are the commission one has to pay to the bookmaker and the winnings from wagers (the revenues). In most cases, one will try to achieve a positive profit regardless of the direction of the market or the underlying value. In other words, the aim is to make a profit, regardless of whether prices go up or down. Remember, in binary options one either makes or breaks even. The same goes for spread betting. The closer one gets to breaking even, the happier the participant.

There is another key point to be made regarding profits in the context of spread betting. In most other types of investing, it is acceptable to make a loss as long as one has a realistic expectation of what that loss is going to turn into a profit. In spread betting, however, one cannot and should not make a loss, regardless of the size of the potential gain. The reason is that, in spread betting, the potential for profit is inherently limited by the number of items (shares or contracts) that one owns. If one makes a loss on an item regardless of the fact that it is a high probability of achieving a profitable outcome, the loss is never going to be offset by any other item. Sooner or later, reality is going to dawn in the form of a margin call and, subsequently, a loss. The only question is how big that loss will be.

## Mean

Now we come to the tricky part. As noted earlier, in the context of investing, the average is positive because, generally, one is seeking to achieve a higher value. However, in spread betting, the average can take on a different connotation. What is it that one is trying to achieve in ‘Mean’ in spread betting? One way to look at it is in terms of a balance. To put it simply, one is trying to achieve a total amount of value, regardless of the direction of the market. Or, in other words, one is trying to make the market level-chested. To give some practical examples, if one is aiming for an average of €100,000 over the next five years, one would set the stop loss at €98,000 and the target level at €102,000. In this particular case, if the share price drops to €98,000 before the end of the month, one will suffer a severe loss. However, if the price stays above €102,000 for the rest of the month, one will make a profit of €2,000. Of course, this is a very simplified example but it highlights the point. In general, in the context of spread betting, the average is going to be positive but the end result will depend on the perspective that one takes. For example, if one is looking at the market from the perspective of a short-term trader, the average will appear very negative because that is generally what one is after. However, if one is looking at it long-term, the average will appear very positive indeed.