Spread Betting Basics

What is Spread Betting?

1. Sports Spread Betting Tips
2. Spread Betting Basics Rules
3. Spread Betting Guide
4. Betting Financial Market Spread
5. Spread Betting Basics Vs

The basics of spread betting are that you are presented with a range of values. As a punter, you have to bet whether the outcome is going to be above or below a given value. The world of spread betting is a much-varied thing, all of which we will break down in this guide.

Spread betting can be a high-risk mode of betting. That is because you are not just looking at a fixed risk on a simple outcome. The more that you are wrong in a spread bet, then the more costly it is going to be for you.

How does Spread Betting Work?

The basics of spread betting are that you are presented with a range of values. As a punter, you have to bet whether the outcome is going to be above or below a given value. The world of spread betting is a much-varied thing, all of which we will break down in this guide. Spread betting can be a. The spread bet broker offers a FTSE price of 4202-4204 (this is called the bid-offer spread and is explained in more detail below) You buy at 4204, which is the offer price, betting £1 a point where each point in the FTSE is worth 1, so a rise from 4204 to 4214 =.

Spread betting actuallyworks in different ways, because there are different variations of it anddifferent formats. For example, there is a great difference between sportsspread betting in the US and in the UK.

You have points spreadbetting, over/under and financials as variations of spread betting. While wewill cover them all in this guide, the most important thing to mention is howspread betting works in the UK. It is possible that you can lose more than you stakein spread betting.

It becomes about accuracy rather than picking a winner. Spread betting is more fluid, more variable than rigid win markets. Let’s say we are looking at Real Madrid v Barcelona win single in regular sports betting. You have three options, a home win, away win, or a draw in the outright market.

You know what stake youare playing. You know your exact risk. You know your exact potential profit.With spread betting, well, you don’t know the potential win. That’s because youare betting one unit stake for every point, goal or whatever it is, above thevalue of the spread bet you have made.

Let’s explain.

UK Spread Betting

Spread betting has risk,just as all types of wagers do. However, spread betting has a higher risk thanjust regular straight-up bets. If you have placed a wager on Man City -1handicap with a 10 stake then you know that the total amount that you arerisking is 10.

That’s it. If City don’twin by a two goal margin you lose. The risk is fixed. The risk is NOT fixed in spreadbetting. That is a crucial thing to put in your head and let linger there.

In fact, spread bettingcan get pretty hairy. It all involves buying and selling.

Buying and Selling theSpread

You are not dealing with odds as in regular betting. Instead with spread betting, you can Buy or Sell on the spread. Whatever the designated spread is, you would either Buy the high number or Sell the low number.

That, in a nutshell is what buying or sellingon the spread means. But where does the stake come into this? Let’s carry onwith this example, of 6-7 corners. You Buy in with a 10 stake at 7 corners.

Remember you always Buy the high number in aspread. That would mean that for every corner above 7 that happened in thegame, you would earn 10. So if there were 10 corners in total in the match,that’s a 30 profit.

Buying 7 Corners (win):

Your stake is linked to the unit of the degree of correctness if you like. The more right you are, the bigger the payout.

However, if the game ended with less than 7corners in the match, then for every corner less than 7 you would LOSE 10. Soif there were only 2 corners in the match, you would lose 50.

So in this type of spread betting (there are fixed spread bets that don’t work this way as you will see in this guide), you can lose more than you stake.

Buying 7 Corners (loss):

But if from the offset you thought that thegame was going to produce fewer than 6 corners anyway, then you would haveapproached it a different way. You would Sell 6 corners.

For every corner under that spread of 6, youwould claim a 10 win. However, for every corner over 6 that happened in thatgame, that would cost you 10.

Selling 6 Corners:

So that is the big risk with spread bettingand why it’s not to be taken lightly. You will find this type of spread bettingmore commonly in Financials. But just to vary off slightly, let’s look atspread betting and what it means in the USA.

US Spread Betting

It is common practice to see points spread betting happening in US betting. Particularly on NFL football. Points spread betting is where the bookmaker gives one team an advantage and the other a disadvantage, in terms of margin of victory.

For example, New England Patriots -4.5 means that a backer who has placed a stake on them would need the Patriots to win by at least five points. This is a scenario where a stronger team, starts the game (virtually) with a -4.5 handicap on them.

So in order for the bet on them to win, they would have to cover the spread by winning by a five-point margin. If they were to win the match but only by two points, then the bet on them loses, even though the Pats won the match.

Dallas Cowboys +4.5 means that the backerwould need Dallas to not lose by a margin of more than four points. It isbasically a scenario where the bookmaker has given Dallas the advantage ofstarting the game with a 4.5 point lead.

So even if they were to lose the match 20-17 your bet on them would still win when you add on those 4.5 points to their score. That’s straight forward points spread betting in the US. It’s a fixed stake though, not the type of UK spread betting which will fluctuate..

Over/Under

Over/Under does fall into the category of spread betting only inasmuch as you are betting on a spread value. It’s more of a Totals option than a spread bet really. This is just where instead of backing a team to cover a spread in a match, as in the above example, you are just targeting the total of points in a game.

This can be the total points in a game betweenthe two teams. Or the total points of one team only in the game. While you arein a sense trying to determine that an outcome reaches above (or under) a setspread value, it’s not technically a spread bet.

The difference really is that risk goes backto being a set risk. A Totals bet like an Over/Under just takes a straightstake for set odds. The profit or loss isn’t going to increase the further awayfrom the prediction that the total amount of points ends up at.

Financial Spreads

Spread betting in the UK is far less common in sports than it is on Financials. What exactly are Financials? This is where you do spread betting against things like the value of currency or the value of stocks.

As you may know, these are generally volatile things. Stocks go up, stocks go down, sometimes all depending on which way the wind is blowing. The same with currency, a piece of breaking news somewhere in the world can affect a currency’s value halfway on the other side of the globe.

Sports Spread Betting Tips

So what makes Financials betting so appealing? It is a big shift in value. Imagine that you have speculated on the share price of Company X. That company releases a new product that day, everybody loves them and their share value soars.

It will likely be a big gain as well, sothat’s where a spread bet could pay off. But that is a best-case-scenarioexample and the real world isn’t often like that. In fact, Financials bettingis very complex and very high risk.

It’s estimated that almost 70% of investorslose money when trading spread bets. A 2009 report by the Times newspaperstated that it was around 1 in 10 spread betting traders that were profitablein the UK. That’s how risky it can be.

Financials spreads, very basically is youdeciding which way a market is going to move.

Example of a Financials Spread:

In this example the spread is the margin between the Up and Down value. It’s not called Up and Down though, it’s called BUY and SELL:

Then what happens? Well you wait and see whathappens to the market. You can open and close bets within a 24 hour periodgenerally.

If you Buy and the market goes up, you getyour unit of stake multiplied by however many points the market went up abovethe price at which you bought the spread.

If you buy and the market goes down, you willlose a unit of stake multiplied by however many points the market finishesbelow the price at which you bought at. It’s simply a case of vice-versa if youhad done a Sell option to start with.

Note in that very simpleformula, the glaring variable. Profit or loss. You do not know the complete total of what you are risking until themarket is done. A major crash in a market after you have done a Buy optionexpecting it to go up could cost a fortune.

Financials betting is awhole different beast, a world away from regular sports betting. It’s complexand it has a whole range of specialist tools to use, as well as specialistbrokers.

What are Brokers?

Brokers in Financialspread betting are a version of bookmakers. They are the middleman throughwhich you strike your bets. Only instead of being called a bookmaker, whichtechnically they are not, they are called Brokers. They are the ones whichallow you to go and speculate on all of the market fluctuations.

Spread BettingCollateral

We have already and willcontinue to do so, speak of the risks of spread betting. There is no fixed loss(although there are limits). It’s all just random on how the markets willreact, and you are never certain of that. Now let’s put collateral intoperspective.

You bet on the value ofthe Bank of NeverNeverland which is currently at 400p. The spread, therefore,is to Buy at 401p or Sell at 399p. We go with a 10 stake, which means that ishow much we will win for every penny that the market goes up above the 401p atwhich we bought in.

But what is theworst-case scenario here? That would be if the value of the Bank ofNeverNeverland went down to a big fat zero. So that would mean a drop of 400p,its full value. 400 x 10 per unit = 4000 maximum loss that could happen fromour bet.

That’s substantial. Notlikely to happen, but that’s called the Collateral. An extreme example of it.But it’s to illustrate a point that you are going to need to have collateral inyour account to place the initial bet.

You have to be able tocover potential losses. This won’t always be at 100% depending on the type offinancials bet you are playing. It’s more realistically going to be 5% of 10%on your total exposure (the max you can lose). Why? Because of Leverage. Readon.

Spread Betting Leverage

This is another of those common terms. A slightly more complex one and it follows on from collateral. Teacup Trains is at 500p. You want to buy-in with a 1 stake. But what about the big 500 collateral if the value goes down to zero (full exposure)?

Well, the Spread Bettingfirm is only asking for a 10% margin to make this bet (so 50). The rest (450)is loaned to you by the firm. A good outcome is that the value goes up 200points and you trade out with 200 profit, all from that 50 deposit risk of yourown money.

If things go badly, and the value goes down, you are out of your 50 stakes and if it all tanks to zero, you would owe your operator the 450 they loaned you.

The thing with leverage is that if the market does move in your favour it means that you never had to physically come up with the full 500 value of the exposure. If you wanted to go to a Broker and buy 100 shares at the same value, you would need that full 500.

So basically summed up, spread betting leverage allows you to put up a small margin of a big spread bet exposure value. For example, if the full exposure was 20,000 a 10% margin means you put up 2,000 deposit on your bet.

What’s the differencebetween a spread and a money line?

A spread and a moneyline are different things. The spread is as mentioned above, where a bookmakersets out a spread, a value that needs to be covered, like the New EnglandPatriots -4.5.

The important thing tonote is that the result on the pitch is not definitive for the bet. It’s allabout the points spread. A Moneyline in contrast, is a fixed-odds bet, just astraight-up bet on the winner of the match.

You will see somethinglike New York Giants -150 and Miami Dolphins +125. On the Moneyline, these arenot point spreads, these are odds. The minus sign represents the favourite, theplus sign represents the underdogs.

The -150 on the Giants means that you would have to bet 100 to win 150.

The +125 on the Dolphins means that you would win 125 for every 100 bet.

FAQ’s

Is Spread Betting profitable?

You can lose more than you stake with spread betting. There are of course ways to be profitable in spread betting. Chasing big returns though comes with high risk.

A good trader may target 1% profit in a month. It is possible but not easy. Strategies promising to earn you between 100 and 2000 a month are not that realistic.

Big sums like than means that you are facing some big exposures, especially if you are only taking 1% profit on speculations.

The US version of spread betting is a lot more approachable. Things like points spreads are just regular sports betting wrapped up differently.

What happens if you tie the spread?

You get your money back. This scenario is called a Push. A push is a very common term and a very common occurrence in spread betting.

Note that a push can never happen where you have half points. If you have Over 3.5 goals in a soccer match, no team is going to score half of a goal.

So the inclusion of the half goal means that a result (win or loss) will happen on the bet. However, you will see straight whole-number spread options too. Maybe it is a simple -4 on the Atlanta Falcons to win.

If they were to win the match 20-16, a margin of exactly four points, then that the spread wasn’t covered. It wasn’t lost either.

A push results in the stake being refunded, because, on the other side, their opponents didn’t cover the +4 spread.

Note that some bookmakers may have “ties win” or “ties lose” on markets to avoid a push and have the bet settled.

What is covering the spread?

Covering the spread is a term used to describe a team doing enough to cover whatever the spread is on them.

This simply means that if you have a team at a -3.5 point spread, they would cover that spread if they were to win by at least four points.

If a team was at +3.5 points then they would cover the spread if they didn’t get beaten by anything more than three points. It’s just a betting phrase determining if your bet won or not.

Does overtime count in a point spread?

If you bet on England to beat Germany in the World Cup Final (90 minutes) and the game is tied, what happens to your stake? It’s lost.

Even if England won in extra time, your initial bet only covered the regulation 90 minutes. It’s different with spread betting. The major points spread sports in the world, hands down, are American Football, Ice Hockey and Basketball and if any went to overtime then your spread bet would still be active.

Is Forex Spread Betting?

Spread Betting Basics Rules

No. Forex is its own thing. It is buying and selling currency at the same time. You make a currency pair when you do that.

Forex is subject to taxation, spread betting is not. But you can do spread betting on Forex markets.

The advantage of going to a spread betting broker means that you can bet on the Forex without doing Forex directly. You could simply spread bet on the spread of the value of a currency pair to go up or down.

Is Spread Betting taxed?

One of the appeals of Spread Betting in the UK is that profits don’t have to be declared to HMRC. So whatever you get to make on spread betting you are going to get to keep.

That is of course unless you put a big sum somewhere where it earns interest and then you would have to pay tax on that.

Want to learn more about betting? Check out some of our other beginner guides.

Q. What do the terms 'Short Position' and 'Long Position' mean?

A: Traditionally, investors have bought stocks in the hope of profiting from a rise in the price. The viewthat the price will rise, and the following instruction to buy, is described as 'long' or 'going long'.
A long position is when you purchase something in the belief that the share will move upwards. So you take a LONG position on it i.e. buy it with a view to selling it at a higher price later for a profit.
A short position is the opposite but the intricacies are a bit harder to explain. Basically you take a short position if you believe the price of a share, commodity or index will decrease or go down. You then take a SHORT position on it i.e. sell it with a view to buying it at a lower price later for a gain. In other words here you are effectively mimicking the act of selling securities you do not own in the hope of a fall in price which can later be closed at a profit by buying the shares back at the lower price.
Shorting ('shorting' is also explained more fully in this section - 'What is Shorting?') as a speculative tool is when you have purchased a future or derivative that allows you to benefit from a share falling, or if you borrow shares and then sell them to benefit from a falling price.

Another good simple explanation would be the following. A short position is when a trader gambles that a share price will fall. Investors take a short position by borrowing stock, usually for a modest fee. They then sell the shares on the open market. If they get it right and the price falls, they can buy the shares back at a lower price, return them to the original owner, pay fees and still pocket a profit.'
I do believe going short offers great opportunities to private investors, however it is something which needs experience, and a real understanding of the market workings.

How does it work? All spread betting firms will quote a sell (or 'bid') price on stocks. This is the price you would use if you wanted to take a short position. If the share price falls, you would stand to make money. If it goes up, on the other hand, you would lose money. In this way it behaves inversely to a normal long position.

Spread Betting Guide

Let's assume Vodafone is currently being quoted at 139p - 140p (139p to sell and 140p to buy) and you believe that Vodafone is about to fall. You decide to sell Vodafone at 139p betting £10 per point. This means you will gain £10 for every point that the price of Vodafone share price falls below this level, likewise you will lose £10 for every point that the Vodafone share price rises above the 139p level -:

Q. Can you really make money in falling markets with a spreadbet?

A: Yes, in fact spread betting comes in very useful if you believe a company's stock price will fall as you can use spread betting to profit from any decline. Now, I do realise that making money on a falling stock sounds like an impossible feat to achieve but just like you can make money by 'buying cheap and selling high', so you can make money by 'selling high and buying low' i.e. selling the shares at a high price and then buying them back at a lower price to make a profit. The practice of profiting from a fall in a company's share price is referred to as 'shorting'.

Example:
Let's take a look at the chart of Datacash Group PLC (Public, LON:DATA) over the last 3 months.
- 1. We sell at 250p for £5 per point (each penny being equivalent to a point).
- 2. We set our stop loss at 290p (which is above the highest price Datacash has risen over the previous 6 months.
- 3. We watch as the price falls over the next 6 days and decide to 'Buy' the shares back at 200p.
- 4. Profit from the trade = 250p - 200p = 50 points. So our gains amount to 50 X £5 per point = £250. Since our stop loss was set at 290p, we had to deposit 40pts x £5 = £200 [{i.e. (290p 'stop loss level ' - 250p 'sell price') X £5 per point)}= amount at risk] as margin to open this trade.
That amounts to a £250 profit from a £200 deposit, a return on capital employed of 125%, not bad for a week's trading!!

Betting Financial Market Spread

Q. But how can you sell something which you don't own?

A: A common problem investors have in understanding the concept of shorting. As opposed to conventional share dealing, spread betting allows you to sell first and buy back later with the aim of profiting from a falling price - this is known as 'going short'. But how can you sell something which you don't own?
It might sound a bit odd to sell something you don't own, but situations like this occur all the time in everyday life. Think about Christmas - when you reserve a turkey for your lovely christmas dinner the butcher is selling you something he doesn't yet own. He then only buys it off the farmer much later.
You could think of it another way - you could sell your neighbour's car for a lot of money while he is away on holiday, as long as you can replace it with the same type of car before he comes back (you'd try to sell his car at a higher price than you would buy the replacement).
The exact same thing can happen when shorting. Let's take commodities for instance - you can 'sell' gold by promising to deliver it to your 'customer' in a few months time. When the time arrives you can buy it and pass it straight to the 'customer' - easy!
A spread bet simply takes a view on the direction in which the price moves. i.e. in other words a spread bet is a contract between you and the spread betting provider to exchange the difference in value of a designated instrument such as a share or index when the contract between the two parties closes. The value of this contract is derived from the price of an underlying instrument - at no point do you ever own the underlying security, irrespective of whether you are trading long or short.

Spread Betting Basics Vs

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