Possibly one of the easiest ways to have spread betting explained, is to use the analogy of the growth in forex trading that we have seen in the last few years. Like the spot FX market,  spread betting is extremely simple, and takes seconds, and like all the great ideas or concepts, it is it’s underlying simplicity which is the great attraction for many, who are drawn to the market as a result. The same has occurred in the spot forex markets over the last few years, where traders can open an account in seconds, select a leveraged account of 1:100 or more, and be trading 100,000 USD plus in the world’s currency markets with only a tiny deposit in their trading account, and offering the option to trade both long and short with equal ease.

Spread betting is almost identical, just as easy to start, and equally easy to lose money very quickly due to the wonderful mechanism of leverage. With a margin account, which I will explain shortly, any spread bet you place can deliver large profits from a small deposit, but equally the possibility to deliver large losses as well, and it is this that is so dangerous. The spread bet is often called an open ended bet, in that your profits are unlimited, as are your losses, unless of course you manage your trades very carefully, either using risk management orders to stop further losses, or by using various spread betting strategies which again I will cover in detail.

So, how do you place a spread trade and what do the spread betting company actually quote in order for you to open a bet? The answer as I have said before is very simple, and whether you are spread trading sports, or financial spread betting, then the quote will always be the same, and is essentially two figures, one of which is to buy the bet, and the other is to sell the bet. The higher price is generally referred to as the ‘offer price’, and the lower price is generally called the ‘bid price’. To buy a bet, or go long, you would open the bet at the higher price of the two quoted ( the offer) , and to go short, you would sell the bet at the lower price ( the bid).  The difference between the two figures is called the spread, and this is where spread betting gets its name. The spread between these two figures is the profit that the spread betting company makes when you open and close your bet, as whichever way you trade, you close your spread trade, by placing an equal and opposite order to your opening trade, which closes out the trade. So if you bought the spread bet at the upper price quoted, then when you close you would sell the bet at the lower price, and visa versa.

Now it is important to realise that the spread quoted varies from market to market and also varies according to market conditions, and as you will see whilst all spread betting companies quote minimum spreads in their contracts, these are the minimum and will vary accordingly. When the financial markets become volatile as fundamental news is announced, then the spreads will widen accordingly to reflect the increased volatility in the underlying instrument or market. Every spread betting company will present this information in their market data sheets along with a range of additional information regarding the underlying risks and margin requirements.

As you would expect in such a competitive market, all the spread betting companies will quote various minimum bet sizes for each market, which once again will vary. For anyone new to both spread betting and financial spread betting, I always recommend learning to spread bet using the minimum bet possible, which at present is around £1 per point, but with one company currently offering a minimum of 50p. Whilst this still seems a small amount, remember that even at such a small sum, then a 100 pip movement would equate to £100 profit or £100 loss – not a small sum and I always advise new traders to equate their bet size to a trade in the cash market, which will help to keep this in context. As an example assume you want to buy a share with a spread betting company as you feel the share is due to rise, and is currently quoted at 200 – 202. You would buy at £1 per point ( or in this case 1p) so in effect you are buying 100 shares. This leads us on to another point which is simply this – imagine we now buy at £10 per point instead, ( or per penny movement) then this equates to a shareholding in real terms of 1000 shares ( or £2,000 in value). In other words for a small deposit in our cash account, and a relatively small bet, we have effectively ‘bought’ or now control shares to the valid of £2,000. This whole concept is called leverage, and in effect what you are doing is funding your spread betting account with borrowed money from your spread betting broker. I cover this point again and again and make no apologies. It underpins every spread betting account and you cannot spread trade without it!

So having explained the basics of spread betting let me know cover some of the basic spread betting terms and financial spread betting terminology that you will come across when researching and looking for the best financial spread betting company for your trading.