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Financial spread betting guide

As we have already seem from the introduction to spread betting and the various markets covered by the industry, financial spread betting is one of the three major markets, allowing us to trade on a wide variety of financial instruments around the world. Whilst the underlying concept of spread betting is very simple, and can be applies to virtually any sporting, political, financial or economic event, or indeed anything situation where a spread bet can be created, financial spread betting is very different from all the other markets simply because the underlying instruments or asset classes that drive the financial markets are in themselves complex instruments in their own right.

If we consider the simple spread bet on a sporting event such as the the total number of goals scored, the number of corners taken, or the shirt number of the player who scores the first goal, all of these bets are based on an event which is happening live and which we understand. If asked, we could explain in simple terms what is happening, why the odds on a particular spread bet are changing and how the odds relate to the underlying event in terms of the likely outcome. In other words, we all understand the rules of football, how long the game is played, how many players there, and the likely outcome at the final whistle, and we therefore know which event the spread betting company is using in order to calculate the spread bets they ate quoting as a result. There is only one event, and one only!  Contrast this with the financial markets.

Ask a novice spread betting client to explain what is the underlying market for the FTSE 100 index, one of the most popular and liquid instruments in the financial spread betting market, and the chances are that they will respond with the answer that it is the London Stock Exchange that provides the basis for the spread betting companies bets, which is in fact wrong. It is in fact the futures market (which I will explain in due course) that is the basis for this particular quote, and indeed unlike the sporting event example above, where we have only one underlying market ( the game itself), in financial spread betting we can often appear to have two, and it is often confusing to the new trader, as to which is the correct one, and why. In the FTSE 100 example we have both the so called ‘cash market’ which is the index quoted by the London Stock Exchange, and is the number most regularly reported on the popular news channels and in the newspapers, and secondly we have the futures  market which will quote different prices, and run during different trading hours. Now you might ask if this is important, which in my view it is, which is why I have written this financial spread betting guide, to try to explain the underlying complexities of spread betting which are often ignored or at best misunderstood.