There are plenty of sites online where you can engage in spread betting. Spread betting will give you exposure to assets without actually owning them. This means that you can earn money and lose money on the price fluctuations of foreign currency, equities, bonds, commodities, derivatives, and more without ever actually owning a company share, gold, foreign money, etc.
How does it work?
- You sign-up with a spread betting trading site and make a deposit.
- You select something that you wish to spread bet on, e.g. the share price of BRK.A (NYSE).
- The trading site offers you a prediction (spread) on where they think the share price will close at a specific time.
- If you think their prediction is too low, you ”buy” on the price. If you think their prediction is too high, you ”sell” on the price.
- If your prediction is right and they are wrong, you make a profit. Otherwise, you lose – and you can lose a lot.
Example 1
Company XYZ on the London Stock Exchange opened the day at 310p.
The trading site quotes 310p to 311p (the spread) for the trading day.
You believe that the share will finish higher, so you buy at £100 per point movement at 311p.
The share ends at 315p, which is four points higher than the trading site’s buy price.
£100 x 4 points = £400
You have made a £400 profit.
Example 2
Company XYZ on the London Stock Exchange opened the day at 310p.
The trading site quotes 310p to 311p (the spread) for the trading day.
You believe that the share will finish higher, so you buy at £100 per point movement at 311p.
The share ends at 309p, which is two points lower than the trading site’s buy price.
£100 x 2 points = £200
You must pay the trading site £200.
What can I spread bet on?
You can spread bet on wide range of things where the price is fluctuating. Different trading sites are having different assortments, so it can be a good idea to look around to find a trading site that offers spread betting on the things you are interested in.
Here are a few examples of things that you can spread bet on:
- Equities
- Bonds (governmental bonds, corporate bonds, etc)
- Exchange Trader Funds (ETFs)
- Derivatives, such as options and futures
- Foreign exchange
- Cryptocurrencies
- Commodities (gold, silver, coffee, cotton, etc)
With spread betting, you don’t need a big bankroll to profit from small price movements
If you think that the share price in Apple Inc (NASDAQ: AAPL) is going up, you can profit by purchasing shares, waiting for the increase and then sell them for a profit.
However, to accomplish this, you need a bankroll.
At the current time of writing, the share price for NASDAQ:AAPL is $240.00. To buy 100 shares, you need $24,000 + commission costs. If they go up to $242.00 during the day and you sell them, you have made a profit: $100 x 2 = $200, minus commission costs.
Many of us don’t have $24,000 laying around that we can use for day trading. If you were to invest a smaller capital, your profit would also be much smaller. Let’s say you buy ten shares instead of a hundred, paying $2,400 + commission costs. You then sell them and make a 10 x $2 = $20 profit.
With spread betting, you don’t need $24,000 to profit from small fluctuations in share price. This is one of the reasons why spread betting has become so popular among small-scale hobby investors and daytraders.