Spread betting is a form of trading in which you bet on the price movement of a share, index, currency, commodity or bond. It is a way of playing the stock markets without actually owning any shares.
Example:
A spread betting provider gives you a two-way quote 237 – 239 (in pound and penny by default i.e. £2.37 - £2.39), offering you the choice to either buy or sell BT shares.
The higher or ‘offer’ price is for buyers and the lower or ‘bid’ price is for sellers. If you think the price of BT shares will rise above the offer price of 239p before the expiry date (17 Jun 08) is reached,
you buy (also known as an ‘up bet’ or ‘going long’).
Conversely, if you think the price of BT shares will fall below the bid price of 237p before the expiry date is reached, you sell (also known as a ‘down bet’ or ‘going short’).
You specify how much in pounds (£), dollars ($) or euros (€) you wish to bet (called the ‘stake’) per point movement (or per ‘tic’) in BT. In this case, one point or one tic is equivalent to a penny movement in BT shares.
The expiry date is the date when the bet is closed and you settle any profits or losses. However, you can close the bet anytime before the expiry date (as long as it is within the quoted market hours for that product). You can also roll it over to the next expiry date.
As you are trading on a ‘per point’ movement of the shares either way, there is no fixed amount that you can win or lose. Your profits (or losses) are equivalent to a multiple of your stake. For example, if BT shares rise 5 points from 239p to 244p before the expiry date is reached, you win £50 on a £10 stake per point bet (£10 x 5 points = £50).
As you are betting on the price movement only, you do not own the underlying share at any point.
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Answered by Andy 1 month ago
