Spreadbetting allows you to trade on the price movements of thousands of financial markets including
- UK and US shares (such as Google, Burberry, BP)
- Indices (FTSE, NASDAQ)
- Forex (Dollar vs Pound)
- Commodities (Gold, Silver, Platinum, Oil)
- and more.
You can use spread bets to speculate on price movements of the markets regardless of whether they are rising or falling. If you go long (buy), your profits will rise in line with any increase in that price. If you go short (sell), your profits will rise in line with any fall. Similarly, if you go long on the price and the underlying stock price falls, you will incur losses.
The following image was provided by financial spreadbetting bookmakers City Index.
Example in Context:-
Let's say our current price on the shares of Google is 8796/8800 (sell price/buy price).
You expect the Google share price in increase over the next coming days and therefore open a buy position (go long) of £10 per point at 8800.
Over the next few days the Google price rises to 8876 following the release of some positive company reports. You decide to cash in your gains by selling £10 per point.
Result: You bought at 8800 and sold at 8876, which represents a 76-point movement in your favour which, at your stake size of £10 per point, nets you a tax-free profit* of £760 (8876 – 8800 x £10).
Alternative scenario: If however, the price of Google had fallen to say 8724, you would have lost £760.
Of course, sensible Spread betting would encourage the use of stop losses which close your out of a trade if things are going the wrong way. For example, when you placed your 8800 price trade expecting a rise you could set a stop loss at 8790 meaning the worst that could happen is a 10pt loss (£100).
To quote famous trader Stanley Druckenmiller "it is not whether you are right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong". In other words, if you keep your losses low and let your profits runas far as they want you can achieve 80% losses and 20% wins and still be profitable.
Consider this:- You place 10 trades. 8 of which lose you £100 because you used a stop loss and got it wrong, but 2 of your trades make you £600 profit each. If you do the maths you'll see you'll be £400 in profit. 8X£100 = £800 lost. 2x£600 = £1200 won.
