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Spread betting definition
Spread betting is a leveraged derivative that lets you speculate on whether a market will rise or fall without owning the underlying asset, such as a stock, index, forex pair, commodity, or bond. You stake an amount per point of price movement, and your profit or loss is that stake multiplied by the points the market moves.
If the market moves in your favour, profit equals the points gained multiplied by the stake. If it moves against you, the loss is worked out the same way. Spread betting is leveraged, so a small deposit controls a much larger position, which enlarges both the potential profit and the potential loss.
Spread betting differs from buying the asset outright. With direct ownership you hold the share or unit and can keep it, whereas with a spread bet you only hold a position on the price, settled in cash when you close. Traders cap the downside with stop-loss orders, position sizing, and margin monitoring. Most retail traders lose money trading leveraged products.
Spread betting Example
You place a spread bet on the FTSE 100 at USD 5 per point.
The FTSE 100 rises 20 points in your favour:
20 points √ó USD 5 = USD 100
You make USD 100 before costs. Had the FTSE 100 moved 20 points against you, you would have lost USD 100 on the same basis.
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