Spread Betting Explained

Spread betting is gambling higher or lower on a position set by the bookmaker. Many exchanges now offer financial spread betting alongside a range of sports betting markets. We’ll show you how spreads work and highlight the differences with gambling at the top online betting sites.   

How Does Spread Betting Work?

What is a spread bet? It’s a wager on whether a position (financial or sports) will fall or rise related to the bookmaker’s spread. Essentially, it’s like purchasing stocks and shares in a commodity without having to make a physical purchase: all you’re doing is betting on whether the price will rise or fall. The more “right” you are, the more you profit. 

Compared to fixed-odds markets, losses can accrue in spread betting if you bet the wrong way. That’s why betting sites allow you to set stop-loss limits (and win limits) to protect you from the downswings. 

downswingYou can also use arbitrage in spread betting to guarantee a profit, regardless of the outcome. As a market moves, the spread betting company moves its spread up or down to reflect the changing action. You can lock in a profit (or limit losses) by betting against your original position. 

Spread Betting Advantages and Disadvantages

There are various pluses and minuses to understanding the spread betting markets and tools. We recommend starting with your own play-money trades before risking any of your cash. 

Advantages

Spread betting offers many advantages, least of all tax-free profits in some jurisdictions. As betting on the markets is seen as gambling, rather than trading, you can avoid state or federal taxes depending on where you live. Plus, some spread exchanges offer commission-free trading on some financial and sports markets. 

•    Low commissions at some exchanges
•    Tax-free profits in some countries
•    Potential for massive profits
•    Stop-loss limits available

Disadvantages

When learning how to understand spread betting, knowing the risks is important. Unlike fixed-odds betting, the potential for large losses is huge..

Financial spread betting can be volatile too. You’re betting on the whim of traders and the markets, so you must close your position if things turn against you. 

Reputable spread betting firms offer guaranteed stop-loss orders. With these, you can set a price to close a position if the market moves againat you. 

•    Potential losses are possible 
•    In-depth knowledge of markets required
•    Deep budgets needed for leverage

Leverage & Margin

Leverage is the value of your initial outlay compared to your potential winnings. For example, you can deposit 5–10% of your potential winnings, perfect if you don’t have the whole outlay available. 

Margin in spread betting means the amount of cash you need to have in your gambling account to cover your losses. Essentially, you’re covering your leveraged position in case things you wrong. 

The margin requirement you need is usually calculated as a percentage of your position, depending on the volatility of the betting market. For example, a 30% margin requirement on a position of $1,000 would mean you’d need $300 in your account (30% of $1,000).