Best bookmakers for spread betting
Picking up a new form of gambling such as spreads, for example, can be daunting for a newbie at the best of times. There is plenty to consider, and deciding where to play is just one of the things you need to think about.
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What is spread betting?
So how does spread betting work? In its broadest sense, it is a way of investing in a trade without ever needing to purchase the stock in question.
Your task is to decide which way you think the value will go and place a wager in one direction or another.
Regardless of the product, if you feel that the value will go up, then your intention should be to buy. The hope is that you will continue to make profits as the price of your chosen stock continues to rise.
Conversely, the belief that the value will go down would drive an investor to sell.
One end of the trade is the bid price where you can buy and the other end represents the ask price at which you can sell. And the difference between the two is known as the spread.
It is a great way to get involved in derivatives with particularly decent tax breaks. And this is especially true in the UK. As you are effectively gambling on the outcome of a trade, winnings are tax-free for the punters.
The concept has made its way into the world of sports gambling and presents an exciting niche for customers to enjoy.
The three main components of a spread bet
When deciding to make a spread bet, there are three things to consider. All of these components will determine how much you stand to win or lose and how quickly it will happen. So it is always worth looking carefully at any potential spread while bearing these things in mind.
So what does the spread mean in betting? As you know, the spread is the difference between the buy and the sell price. The size of the spread changes depending on various factors such as how much interest is taking place in the stock and what the liquidity is at that point.
Regardless of whether you think that the price will rise or fall, the actual value at the point you make your trade is slightly different. And this is how the broker can make a profit without charging any commission for the trade.
The trader needs to overcome this step up or down between the actual price and their position of buy or sell just to break even.
So if there is a tight spread, then it won’t take as much movement in the price to start seeing a profit—or potential loss. But a wide spread means that there needs to be plenty of movement before anyone sees results.
Now you don’t have to wonder ‘what does spread mean in betting?’. It’s actually pretty simple!
The size of your initial bet is always important regardless of the type of investment you are making. But it is extra important when it comes to betting the spread.
In a fixed-odds bet, you only stand to lose your wager. And your winnings will have a maximum depending on the size of the odds.
But this form of betting is different. You stand to win or lose every time the price or range that you are betting on keeps moving in one direction.
For example, if you bought into a trade hoping that the price will continue to rise, but it actually fell, then straight away you stand to make a loss. But imagine that the price fell by 10 increments. That means that you would lose 10 times your stake and not just your initial wager as would be the case with a fixed-odds bet.
Spreads can continue to get very good or very bad for the trader depending on which way the results are going.
This is why a spread bet wager would usually be a lot lower than a fixed bet wager.
The bet duration is only really a consideration if you are betting on financial markets and commodities etc.
These are generally daily funded bets or quarterly bets. For dailies, they run as long as you choose to allow them to. These are generally used for short-term positions. Quarterlies are future bets that will expire at the end of a quarterly period.
When it comes to sports betting spreads, the duration of the bet is only as long as the match lasts.
Alternatively, if you have placed a spread bet that continues across an entire tournament or season, then bets will be resolved at the end of it.
Example of a spread bet
Let’s imagine that you want to invest in a spread bet that involves Apple’s share price.
At present, the Apple shares have a value of £162.5. The spread might be a sell price of £162 and a buy price of £163.
We’ll assume that you make an investment of £1 and that the points movement is based on 1 point per £1 lost or gained in market value.
If you decide to sell the market at £162, the first problem you face is waiting for the price to drop from £162.5 down to £162 just to break even. That’s the broker taking their cut right there.
If the price moves down (as you predict) to say £142 per share, for example, this gives a shift of 20 points. The profit would be £1 x 20 = £20.
But if the price went up instead to £182.5, then you’d lose £20. So that £1 bet could turn out to be quite costly.
The history of spread betting
America in the early 1900s presented a precursor to what we know today. They were called bucket shops and were places where the general public could pop in and place small bets on the rise and fall of various share prices.
Intense pressure from Wall Street led the government to outlaw the practice and it became a thing of the past stateside.
In England, in 1974 a man named Stuart Wheeler developed the idea of allowing trading on the price of gold as an index. This came about as it was illegal at the time to trade physical gold for speculative purposes.
He went on to create the company IG Index which stands for International Gold. He perfected the idea of a spread where brokers could make a commission and the general public could effectively gamble on the potential rise and fall in the price of gold over a period of time.
Comparing a spread bet to a stock trade
It may well sound like any other form of investing. You are essentially deciding whether or not you think the value of a company will go up or down in the future. But there are several distinct differences that set them apart
The stock trade
Trading in stocks and shares effectively means that you are taking ownership of a small part of that company or purchasing a contract that equates to a certain quantity of a product.
You might trade in shares in a large company such as Vodafone, for example, or perhaps stock like oil or another commodity.
When investing in this way, you will need to put up a lot of collateral if you are hoping to make big gains. This is why certain types of trading are out of reach for most people.
Stocks and shares can also stay in your possession for many years. And even though the price may fall at some point, you can stay in it for the long haul and wait for the market to turn around and receive some benefits later on.
Investing like this involves a stockbroker who will prepare all the necessary paperwork for you throughout the process. For the privilege, they will charge you a fairly decent commission.
The spread bet
A spread bet differs in the most obvious way that you don’t physically need to purchase any shares or contracts. You are simply betting on the price increase or fall of any given index that is available.
Commissions don’t exist as the broker makes a profit through the spread and no tax is payable in many countries including the UK.
Spreads are a simple and accessible way to enjoy investing in various outcomes. It may be the price of a company’s shares or the value of a commodity. And as you will see in a moment, it’s also possible to enjoy this form of investing while betting on sporting outcomes as well.
It presents much lower costs and far less liability with a faster-paced type of investment action. The main consideration is that you must place some controls on the amount that you could potentially lose. Otherwise, sudden movements while you are not taking notice of the situation can result in large losses.
Advantages of spread betting
Let’s take a closer look at some of those advantages that come your way when you are betting in this way.
No tax on your gains
As we mentioned before, there is no issue of tax in certain countries. Investing in shares can incur capital gains and stamp duty. And this can begin to eat into your profits quite nicely if you don’t take them into account.
But given that you are not taking ownership of any property, the UK government considers your speculation to be nothing more than a gamble. As a result, it falls in line with all other forms of gambling in the UK. As such, it’s not subject to any capital gains, income tax or other types.
You can make money even when the market is falling
If you purchase a stock, then you will need that stock to begin to rise in price in order to make a profit.
Any downward swings would mean that your initial investment would start to dwindle.
But here, you are able to decide if you think the market will increase or decrease from the start. That’s giving you a chance to speculate on a short-term investment and still make a profit by selling high and buying low.
Markets rise and fall throughout the day and week. This makes it the perfect platform for plenty of activity for punters to enjoy an interesting range of bets.
Low investment limits
Investing in this format, unlike stocks and shares, means that you are not liable for the full price of a purchase. You simply need to pay a deposit to cover the margin that the broker believes is a reasonable fluctuation for that type of trade.
However, if things start getting away from you, then a broker is likely to begin increasing your deposit to cover any potential losses. Alternatively, your trade may be closed out automatically during a margin call.
But the fact still remains that you can get started with a very small investment and limit the profits and losses by keeping a close eye on your investment.
Access to lots of markets through one account
A spread account is far more user friendly and easier to understand once you get to grips with it. Regular stock and share trading aren’t accessible, in general, through an app without a broker by your side. Of course, this kind of tech does exist, but there will be plenty of fees involved to get started.
Given the ease of use that this type of investment presents, it’s possible to adapt this easy style of trade to many different indices. Literally, anything that can have a swing in value up or down can be gambled on.
Disadvantages of spread betting
But not all is rosy in the world with these bets. There are a few things to take into account before embarking on this journey.
Spread bets can present indices that are susceptible to high volatility. Prices can swing one way or another in a matter of minutes. When dealing in more traditional shares, the daily movement is usually quite minimal. That is unless something catastrophic happens to the market, or an individual company, for example.
This style of investing usually requires a trader to stay vigilant throughout their trade. Otherwise, they may see some nasty surprises when they come back to check on things.
Losses can be sudden
Big gains along with big losses are always possible in a short space of time.
As we said, you need to be prepared to keep an eye on your Investments. Alternatively, you can learn how to use the tools available to stop potential losses in the tracks.
Small movements in price coupled with the size of the bet are important to consider before you start.
Very short-term strategy
Leaving your spread bet running overnight or for a number of days can be a very dangerous thing to do. Even with stop losses and other types of insurance, it’s still possible that you may well lose a lot more than you bargained for if you don’t get out at the right time. Therefore spread bets are far better over a short day trade where you were able to make quick decisions as and when you need to.
Spread betting and risk management
We’ve mentioned quite a bit about managing your risks while taking part in spread bets. We cannot stress enough how important it is to keep tight controls on your trades. Let’s take a closer look at how stop loss orders work.
Stop loss orders
Stop loss orders are like a free insurance policy. When you enter a trade, there is always a chance that the price will go up or down, as you know. When the price is heading in the right direction for you, there’s no problem. As a result, you’re making more and more profit each time it continues to do so.
However, when the price is going against you, you can’t just let it run. You’ll end up with massive losses. So you need to monitor the stock. Getting out at the right time is crucial—regardless of how your trade is performing.
But not everybody has time to keep watching the figures all day. And this is where the stop loss order comes in handy.
A stop loss order tells your broker or trading app, for example, that you want to stop a trade. If it starts going too far against you, then you can dump it at a fixed point. A little fluctuation is normal, but you want to decide the price where you end the investment.
Most common assets for spread betting
Spread bets can occur on all manner of options. If the price can fluctuate, then you can bet on it! It all began with betting on gold prices, but now the possibilities are vast.
Foreign exchange trading is one of the most popular types of spread bet markets. Currency pairs are constantly moving in small increments against each other. So, the spread is usually pretty tight. This means you don’t need to see much change in value between the two currencies to see plenty of action.
These are the currencies that get the most attention: USD, EUR, JPY, GBP, AUD & CAD.
Without a doubt, crude oil is the most popular commodity trade. The price tends to move frequently and causes a big stir on the trading floor. Big losses and gains are never far away for traders with this type of trade. But with spread bets, you can limit potential problems with a stop loss order, as we looked at before.
Other top trades include coffee, gas, gold, wheat and cotton.
Shares have a reputation for being a fairly safe way to trade. But you need to be in it for the long haul with this type of investment. Standard share purchases will see you hold on to your investment for many years, in some cases. The idea is to simply hope that the price goes up over time.
But share prices can apply their own values to a spread bet format as well. Rather than buying the shares, you could just speculate on any small possible changes from day to day. Unless there is a major announcement, most shares tick along without too much risk of big price gains or losses.
The world’s trading indexes are great places to enjoy a flutter. The S&P 500, Nasdaq and FTSE 100 are constantly monitoring the prices and values of various companies and commodities. Spread bets take the overall value of a particular index and allow you to speculate on it.
Sports betting spread explained
Sports spread betting opens up the sports betting arena to a whole new style of wagers. The basic principles of a spread work perfectly across thousands of different markets within the sporting niche.
Everything from one-off football match winners to number of runs scored in the Cricket World Cup are all on offer.
Traditional fixed odds betting gives you a price that shows exactly how much you’ll win if your bet comes through. The risk to your wallet is the size of the bet you place. But spread bets mean that your profits continue to grow if your prediction is right. And the same happens with sports spreads as well.
Let’s say you buy into a spread on the number of goals in a football match, for example. If the game ends with fewer goals, then you stand to lose your stake multiplied by the number of goals that weren’t scored during the match. But if more goals are scored, then the opposite happens.
You will be using your own deposit as collateral for a bet. So a loss could wipe out your deposit. Always be aware of the size of the wagers that you are placing.
A point spread helps overcome the imbalance between two teams. You’ll also hear people refer to this as a line bet.
Betting lines explained
For example, if Man city is playing Basingstoke in an FA cup match, then it is very likely that Man City will win.
Therefore, a bookie uses a margin on the stronger team. They must overcome this in order to actually win the match in the eyes of a bet. It’s like placing a handicap on a team to put them on a level playing field with the opposition.
In the above example, Man city may need to win by two goals just to arrive at a draw to satisfy the bet.
It is a very popular method that sportsbooks use when they are offering spread bets.
NFL spread betting
When it comes to Super Bowl spread betting, the NFL tends to focus on the points spread that we mentioned above. The vast majority of punters will use the spread to predict whether or not one team will prevail against the other.
They can place a bet on the favourite winning. In this case, they must overcome the spread in order to put the team in the lead. Alternatively, they can bet on the underdog and see profits as long as the loss falls within the margin or better.
You won’t find many places offering different types of markets for this sport, especially in the UK.
NBA Spread betting
The NBA offers a wider range of markets for spread bet fans. Not only is the points spread available for the overall winner and loser, but it’s also possible to use standard spreads in other ways.
You can choose a match winner spread without the use of the points margin. In addition, you can also find spreads between the total points that accrue between the two teams throughout the game.
Other similar bets include the number of points accrued by either team separately. Also, it’s possible to bet on each quarter and who will be winning or the number of points scored within those quarters or halves.
Tennis spread betting
Tennis betting is becoming increasingly popular as sports streaming services are opening up the possibility to watch not only the majors but also smaller events as well.
Standard betting within a tennis game is usually on the outright winner or the number of sets. But spread bets take it a step further and allow you to enjoy 20 plus markets on most games.
Points come for each game one or each set won, for example. And also for the overall winner of the match. This allows for a wide points system to be used and create various spreads.
Soccer spread betting
Most matches in the UK offer hundreds of spread bet markets. So how does spread work in football?
One of the most frequently sought after is the winning margin of goals of one team compared to the other.
It’s also possible to use football spread betting on the total number of goals scored in the game as well as many others as well.
Some of the more unique spreads that you are able to select with football bets are the total of the shirt numbers of all the match goal scorers added together. And also the total number of corners within the game as well. This type of bet usually has quite a tight margin and many punters choose to have a flutter on this.
Here are a few FAQs in case you missed any of the key info above.