Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Spread Betting”
A financial spread bet is a way of trading on an asset, such as a share or a commodity, or even an entire market, such as the FTSE 100 index, without having to physically own that asset.
Spread betting involves taking two-way bets on the movement on assets such as foreign exchange, stock indices and commodity prices. An investor may make a bet while the spread betting firm acts as the counter party.
The spread betting firm quotes buying and selling prices in ‘points’ based on the actual price of the asset in the market, and you, the investor, bet on those prices. Every point that moves in your favor results in a win in multiples of your stake – and every point against you results in a loss of multiples of your stake.
If you think that an asset will rise in value, then you ‘buy’ the spread bet and aim to sell it at a higher price. This is known as “going long”. If you think that an asset will fall in value, then you would ‘sell’ it and aim to buy it back at a cheaper price. This is known as going short.
You can close a spread bet at any time when the spread betting firm is making a price, to realize a profit or loss, by taking out an opposite bet of the same initial stake.
By Barry Norman, Investors Trading Academy – ITA
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