All trading involves risk. Losses can exceed deposits.

How spread betting works

When you spread bet, you’re betting on whether the price of an underlying asset will rise or fall.

All trading involves risk. Losses can exceed deposits.

Spread betting offers a great way to speculate on the movements of markets without having to buy the assets themselves, but it differs from other forms of trading in several ways. Read on for an introduction to three key concepts that help explain how spread betting works: the spread, the bet size and the bet duration.

1. The spread

The spread is the difference between the two prices we quote on each market, the offer price and the bid price. If you think a market is set to rise you ‘buy’ at the offer (higher) price, and if you think the market is set to fall you ‘sell’ at the bid (lower) price

When you want to close a bet, you take the opposite action to when you opened it: buying if you sold, and selling if you bought. For that reason, the market price of your asset will have to move beyond the spread before any profit is made.

2. The bet size

The bet size is the amount you bet per unit of movement of the underlying market. You can choose your bet size, as long as it meets the minimum we accept for that market. Your profit or loss is calculated as the difference between the opening price and the closing price of the market, multiplied by the value of your bet.

We measure the price movements of the underlying market in points. For UK equities, for example, one penny movement in the underlying market would equal one point. The movement of a whole index, however, is simply measured in points.

For example, if you open a £2/point bet on the FTSE 100 and it moves 60 points in your favour, your profit would be £2 x 60 points = £120. If it moved 60 points against you, you would lose £120.

3. Bet duration

The bet duration is the length of time before your position expires. All spread bets have a fixed timescale, expiring from within a day to several months away. You are, however, free to close them at any point before their designated expiry time, assuming the spread bet is open for trading.

Here are two examples of spread bet durations:

  • Daily funded bets run for as long as you choose to keep them open. They offer our tightest available spreads, with a default expiry some way off in the future. We will make an adjustment to your balance to reflect the funding costs of your position for each day that the bet remains open. You would generally use a daily bet to speculate on short-term market movements.
  • Quarterly bets are futures bets that expire at the end of a quarterly period. These bets have funding costs built into the spread. You can roll quarterly bets into the next quarter if you let us know in advance.

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