If you're not already familiar with it, spread betting is an exciting and fast-paced financial instrument. It's also one of the most misunderstood of the lot! We've compiled this simple yet enlightening guide to explain everything about spread betting to ensure that you're not taken for a ride by another scam or dubious business. We hope this helps to clarify what spread bets are, the best way to understand them, and what they can do for your portfolio.

What are Spread Bets?

Spread bets are similar to traditional bets on stocks and shares but have a wider range of potential outcomes because there's no limit on how much you can win or lose per trade. You'll gain or lose only a percentage of the stake, known as the spread. That's it.

How do you trade?

You can place bets by placing a bet on an individual stock (by selecting it online or in the phone app) or on a country, industry, or asset class. You can choose to bet on just one of these things (a single bet) or use a range of investments by setting up a spread bet with different underlying assets at the same time (a multi-bet).

What are my options?

Spread betting offers four main trading options: Single bets, multi-bets, bid/offer spreads, and synthetic trading.

Single Bets A bet on an individual asset.

Multi-Bet A bet on several assets.

Spread Betting (Over/Under) A bet that the price of an asset will finish over or under a set price.

Synthetic Bet A synthetic bet involves dealing in the derivatives market without owning the underlying asset, so you need to talk to a broker before placing the bet.

How Do Spread Bets Work?

If you think of spread betting (also known as spread trading) as a way to take the emotion out of trading, you’re not wrong. Instead of getting involved in the ups and downs of the market, like stocks and shares, spread betting is something you set up for a specific investment period (the spread). The longer your investment period is, the lower your chances are of losing money.

Types of spread betting

There are two types of spread betting: the standard spread bet and the high-leverage spread bet. You can only open an account with one of these types of spread bets, so choose wisely.

A standard spread betting account is a normal bank account used to make regular deposits and withdrawals.

High-leverage spread betting requires much higher deposits than a standard account. Therefore, it is considered riskier because there's more on the line if things go wrong. Even by professional standards, it's a fairly small risk compared to other investment instruments such as stocks and shares, so this type of spread betting isn't recommended for most investors who want to make consistent profits from their investments.

How Do I Place a Spread Bet?

Placing a spread bet is simple. The first thing you'll need to do is decide how much you will invest, which can be anywhere between £10 and £5,000.

Once you've decided what you're going to use your spread bet for and how much money you want to invest, open an account and deposit into your investment bank account using online banking or a credit card. You will then be able to place bets on different things such as shares and commodities.

As well as placing a bet on the market, you can also bet on the direction of over 30 asset classes. If you want to take your spread bets further, you can make a synthetic bet. Instead of using the actual market price to decide how much of your stake will be returned, it will be based on an agreed-upon price.

The best part about spread betting is that it's possible to make consistent profits from small stakes, perfect if your investment budget is relatively limited but still needs some cash flow.

How do I Lose Money?

Losing money is easy to understand as spread betting is a financial derivative. If the price of your investment goes down, you're losing money. However, it's also risky because the big risk lies in your ability to predict what will happen next. If you put £1,000 into a spread bet with a 20% margin, you can only lose £200 for each £100 stake initially invested. This means that the losses would cancel out fairly quickly. But with a £1,000 stake on £50 per point and a 20% margin, you would still only be able to lose £200 - so it's not as bad as it sounds.

Your losses are only limited by what you've invested in. With a £500 spread on £50 per point, with a 20% margin, you would only be able to lose £100 - but this is why high-leverage spread betting is recommended for experienced traders. However, if you're just starting out as an investor, stick to the standard spread betting.

How Do I Make Money?

The profits generated by your spread bets will depend on how much leverage is in your account and what your winning rate is. If you use a lot of leverage, be prepared to lose everything if the price falls (especially during a market crash). Your profit will be based on your winning rate, the number of wins out of a certain number of bets. For example, if you bet £1,000 and win £1,000 in profits, that's a 1% margin and 0% winning rate (because you didn't make any money). If you win £5,000, that's an 800% margin and a 20% winning rate (you'll have won 20 out of 100 bets).

Your profit is calculated by how much value your assets gained over the measurement period. The measurement period can be anything from 1 minute to 5 years. Once the interest has been paid on your original stake, any remaining profit is transferred to your bank account.

How do I get started?

The first step is to open an account with one of any trusted spread betting platforms. Then download their app or visit their website to view investment opportunities and select your favorite trading options using either single bets, multi bets, or spread bets (over/under).