Have you ever heard the phrase “spread betting” and immediately gotten confused and intrigued about what it means? You’re not alone. Spread betting can mean different things to different people, but most agree that it’s the art of speculating in the financial markets without taking ownership of the asset you’re trading on. For example, when you believe a cryptocurrency’s value will rise within a set timeframe, you can “stake” money on the potential price movement. You can also “bet” on the asset losing value if your analysis suggests so.
How Does Spread Betting Work?
Spread betting is almost always leveraged (unless otherwise stated), meaning traders only need to deposit a fraction of the amount they trade with. Margins are used to create larger trades, allowing you to increase your potential earnings, but your potential losses are also compounded. Margin can be a great tool when used correctly. In many cases, spread betting offers interesting tax benefits because you never take ownership of the asset being traded.
Going long is placing a bet on the value of an asset to increase over a set timeframe. If you believe an asset is undervalued or potential developments in a company will lead to value increases, you can go long by betting that the value increases. If you choose a long position on a stock valued at £1 to increase by 5% over the next hour, you’ll profit if the stock trades at £1.05 or more in the next hour. You can also make more depending on how close your prediction was to the truth.
Going short is the opposite of going long; the concept is straightforward. Let’s say you stumble on the price of silver; your analysis suggests that it’s overperforming or that a principal silver demand reduction is coming, and you can decide to bet against this commodity by going short. Imagine the theoretical value of silver in this instance is £1. Your analysis suggests it’ll trade at £0.97 over the next 24 hours, and you can stake on a minimum 3% value loss during that framework. Spread betting is often a bit more complicated than this, as you’re usually betting on fractions of a dollar, so you might need to guess as close to the closing value as possible.
Spread Betting Risk Management Tips
Leverage
Remember when we talked about leverage and margins earlier in this article. Leverage can be your most helpful tool when used correctly, or it can end up being your greatest undoing if you fail to get it right. Imagine you want to take a £100 position on a stock, but only have 20% of the value. Leverage can help you make the trade at full value while you only need to put up a fraction in the beginning. Leverage magnifies and compounds profits, but it does the same for losses.
Margin
There’s more to margin than just being a percentage of the trade value you have to have before executing transactions. Some people get surprised when they learn more about the intricacies of margins, but they sometimes realise too late.
Deposit Margin
This is what most people think about when they’re working with margins. This is the amount you have to deposit when entering trades.
Maintenance Margin
Maintenance margin kicks in when things go from bad to worse. Things aren’t that bad if you’re making losses that your deposit can cover. Maintenance margin involves additional payments when open positions begin making losses beyond the insured deposits. You’ll often get a margin call before the position is closed.
Spread Betting Bot Revolution
Spread betting has become essential to many individuals’ and companies’ investment strategies. Those who can afford to invest in quants or access predictions from these bots are making significant headway in the trading ecosystem. Quants changed the game when they first became accessible and are still revolutionising how we bet on price movements. One of the best things you can do as a retail trader is to find a way to access real-time, reliable information and predictions from companies offering “bot analysis” services. Spread betting can be risky, but bots are a great way to minimise risks and exposure.
Protect Your Finances
Spread betting can be a rewarding experience when done right. Consider working with “hard” limits like stopping losses and taking profits to protect you and your finances. Dealing with leverage and margins means that you’re not only losing your money, but you’re also going into debt. By being disciplined, you can join the growing number of people making wise investment choices in the trading ecosystem.
Are You Ready To Win?
The finance ecosystem is ready for you to record significant wins on your journey to achieving your goals. All you need to do is conduct serious research before making decisions; you won’t regret being extra vigilant as a spread betting professional.
