Difference Between Spread Betting and Ordinary Betting

By mosesbet · Filed Under Spread Betting Comments Off on Difference Between Spread Betting and Ordinary Betting 

Differences between Spread Betting and Ordinary Betting

Most people new spread betting want to know what the difference is between spread betting and ordinary “fixed odds” betting.

To help illustrate the difference, let’s look at an example of a greyhound race.  If we think a certain dog will win the race then we’ll find a bookmaker who gives us the highest fixed odds and then we’ll wager a specific amount of money.  Once we place our bet, that is it, we either win or lose depending on the outcome of the race.  There is a specific amount that we can lose and a specific amount we can win.  For example, if we wager £100 on Dog A winning at 5.0, then we’ll either win £500 or lose our £100 stake.  It’s pretty basic stuff.  The amount that we win depends on the odds that the bookie offers us.

Spread betting is totally different however.  When spread betting, rather than betting on a specific event or outcome, we will be wagering/speculating on the movement of stock (or another financial market such as commodities/currency/house prices).

To place a spread bet, we first have to select a certain stock or share that we think will move up in price.  Then we will have to contact a spread betting company that will give us an offer (sell) price for the shares after certain duration (e.g. 24 hrs).  If we think this is wrong, then we can wager a specific amount per point on the movement on the shares.

Let’s say that we wager £10 per point on the movement of the stock, and the bank gives us a bid (buy) price of 140.  If this moves 5 points to 145 then we’ll make a profit of £50.

The beauty of spread betting is that unlike ordinary fixed odds bets, you can close the bet at any time whether you are making a profit or a loss.  Most trading platforms even allow you to set a stop-loss order so that you automatically close the bet if the stock drops too far (usually 10%) to prevent you risking too much money.  You can find more information about this from our partners at Financial-Spread-Betting.com.

The leverage from wagering on the point movement of stock also means that you can make a massive amount of profit from a subtle movement.  For example, if you wager £10 per point and the stock moves up 10 points, then you can make £100 profit – just from £10 in starting capital (1,000% profit). Unfortunately, leveraging means you can lose a lot of money too from a drop in the value of stock.  This is why spread betting is so risky yet rewarding for experienced financial traders who know what they are doing.

What is the Spread?

Pretty simply, the spread is the difference between the bid (buy) price and the offer (sell) price.  When you phone up your broker up financial broker and ask for a price on a certain share, you’ll always get a bid price for buying and an offer price for selling.  The bid price is always a 1pt higher than the offer price: the difference is the bookie’s commission.

For example, if the bid price is 150, then the offer price will be 149.  The difference is the key to how the bookie makes his profit.

Be Sociable, Share!