Financial Gossip

Spread betting, also called spread trading is a method of speculating on the world’s currency exchanges in order to make a profit. On the foreign exchange, you bet on spreads without actually owning the currencies. Spread betting is, as its name suggests, a form of gambling although your odds can improve with experience. You bet on the movements of pairs of currencies (i.e. the spreads).

Spread betting isn’t unique to the foreign exchange – in fact, financial betting is fairly new. Spreads are found everywhere – greyhound racing, football, the stock exchange… anywhere that bets can be placed. The joy of spread betting on the foreign exchange is that you don’t own the currencies involved, you just bet on their movements. Unlike other forms of trading you don’t need vast amounts of capital.

There are various types of orders that you can use in spread betting. The most traditional, and still widely used, is an order ticket. As the name suggests, the user fills in an online order ticket that includes price, bet size, “stop” requirements and order type. This can be combined with level 2 trading, in which you place bets on currency movements happening at that very moment, i.e. in real time.

Single click spread betting uses powerful software that allows you to perform complex strategies with single actions, using charts or specialist tools. To capitalize on spreads successfully, it’s essential you understand the terminology of market orders, which is why you need a good spread betting specialist who will explain the concepts in an easy-to-understand way.

Spread betting allows you to dip your toe into the heady waters of financial trading, without getting your feet too wet. Basically it’s a form of financial gambling (spread bets can be placed on anything, including horse racing and the stock exchange). With financial spreads, bets are placed on the movement of currency pairs on the foreign exchange, either at a point in the future or at point of trade.

There are various forms of spread betting, some more complex than others, but they basically mirror normal forex trading. The difference is, you place a stake rather than purchase the actually currencies involved, so there is no heavy outlay.

Briefly, you as the trader speculate on the direction of one or more currency movements, relative to each other; for example GB Pound versus US Dollar, or US Dollar against the Euro. You specify the amount you want to bet on each point movement. Profits and losses are made by calculating the difference between the opening and closing prices, multiplied by your stake value.

There are certain rules in spread betting, though. Unlike the bookies, you can’t just go in and bet 50p on the outcome of the Japanese Yen and the US dollar in the 3.30. Financial spreads are margined, meaning you deposit a percentage – typically 10% – of the overall value of the trade so you still have an initial financial outlay. However, this is far less than you would pay by buying the full value of the spreads, giving you a much larger position overall.