What is spread betting?

Spread betting is placing a wager on an event, with the pay-off depending upon the accuracy of the wager. The spread is a range of outcomes, and the bet is whether the outcome will be higher or lower than the spread. The two most obvious examples are sports betting, and financial spread betting.

In sports betting the bookmaker gives a spread on the game (proportional to the advantage he perceives the favourite to have). If the gambler bets on the underdog then he wins if the underdog's score plus the spread is greater than the favourite's score. If the gambler bets on the favourite he wins if the favourite's score is greater than the underdog’s score plus the spread. In either case the amount he wins depends on how much he has beaten the spread.

The following sites offer sports spread betting:

IG Index
Sporting Index
Spread Fair – A spread betting exchange that works in a similar way to Betfair

Financial spread betting involves betting on the price movements of financial instruments. To bet on the price increasing you "buy" at a little over the actual price, and to bet on the price decreasing you "sell" at a little below the actual price. The difference between the "buy" and "sell" prices is the spread, and may reflect the spread betting company's expectation that the price will rise or fall. Once made a bet can be closed at any time. The bet is settled as the difference between the purchase and sell price.

There are a number of advantages when compared to trading directly. Firstly by betting on price movement you gain more exposure for your money. For example to trade on a stock worth $10 you don’t need $10 for each point you wish to stake, just enough to cover any loss you might have if the movement is against you.

The flipside to this is that you also buy more exposure to risk. Secondly you can bet on the price increasing or decreasing. This is more important than it sounds as for most individual traders it would not be possible for them to "go short" on shares. Thirdly because it is betting rather than trading there can be tax benefits. Certainly in the U.K. it is an activity which is not taxable as it is considered gambling.

An excellent website covering financial spread betting is http://www.financial-spread-betting.com

Both Capital Spreads and E*Trade offer demo accounts that will allow you to get to grips with spread betting before taking the plunge with your own money.

BullBearings offers a virtual online trading website where you can practice your skills before risking your own money as well as reading guides and the various types of trading.

In addition to this, many companies offer free spread betting seminars. Capital Spreads and Bullbearings both offer regular learn to spread bet seminars. Take advantage of these.