How Spread Betting Works
Spread betting may sound like an intriguing way to invest, but how exactly does it work? In this post, we’re going to answer that question by explaining what spread betting is all about and give you some insight into where the industry is heading.
After reading this, you may even be tempted to start your own spread betting investment empire. Or you might choose to never dabble in the future side of the investment world. The important thing is that you will be equipped with fresh knowledge and at least be able to answer the question below.
What is Spread Betting?
In the context of investment, spread betting is a form of speculation in which you bet on the price movement of an asset. So, as an investor, you never actually own the underlying asset. You don’t buy any shares, currency, or metals. You simply place a bet. And your bet could be for a higher or lower price.
Spread Betting in Action
If you rely on a trusted broker to place your investment, you will be able to bet on a variety of instruments in markets including foreign exchange, indices, shares, metals, commodities, and treasuries. An example would be if you trade £1 per point on a share on the FTSE at £50. When it moves to £55 you will make or lose £5, depending on your position. You close the bet by placing the opposite bet at the same value per point. The spread (hence the name ‘spread’ betting) is the difference between the opening and closing bet, and you can find your profit or loss by multiplying this spread by the price per point of your bet.
Why is Spread Betting Popular?
Spread betting allows you to make a profit even when the market falls. It’s also a means of investment in which little or no commission is required to make a trade. Another plus is that in most countries this is a highly tax-efficient way to invest. But the downside is that with the power to leverage (not put up the full value initially) you also expose yourself to risk. So, this could be a way to invest for more experienced speculators only – or at least speculators who are well informed.
The Future of Spread Betting
With the opening of bitcoin futures markets in December 2017, it looks more and more likely that the new arena for spread betting will be the world of cryptocurrency. So, if you are interested in getting involved with spread betting as a form of investment, it might be worth brushing up on bitcoin, Ripple, and other new currencies. That way you’ll be able to make the most of as many opportunities as possible.
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