Monday, 21 March 2011

Spread Betting - Part 2

Financial products have a bid and an offer price. When someone says that the price of BP's stock price is £465, they are stating the last traded price.

So what are the bid and ask prices?
The bid is what you can sell a product for, i.e the best price at which people are bidding and willing to pay for it.
The ask is what you can buy a product for, i.e the best price at which people are asking and willing to sell for it.

The bid-ask spread is the difference between the bid and the ask price. (simple huh?)

In spread betting you bet a stake per point. I think it's best if I show this through an example.

Let's say that the stock I am looking at is HSBC PLC.
Its bid price is 635.0 and its ask price is 637.0.

If I expect HSBC to fall in price then I might sell the stock, in this case, at the price of 635.0. I'm quite confident so I have a stake of £30.

Immediately I am at a loss of £60 because the minimum that I can buy it back for is 637.0 still. I am limited in funds and only have £300 in my account, so cannot let the stock fall below this price else I would be in negative equity so I put a stop loss at this point (645.0). This means that when the bid price hits this level, my position will be closed and I will be at a loss of (£30*10points=£300).

Luckily however for me, investors might lose confidence in HSBCs and cause the stock price to fall. Its ask price falls to 630.0 and I decide to close the positon with £30*5points=£150 profit!

I hope this post has given you an idea of what bid and ask prices are and how to perform a basic spread bet. An important lesson being that the second you put on a bet, your position is in loss due to the spread. Which is why you must look around for the best spread betting provider who can give you the tightest spreads.


  1. wow really informative .. thank you :)

  2. This has potentials...
    I need coffeee!!!

  3. i like the kind of thinking allthough i never support stock gambling... maybe we can start a debate about stock and capitalism in general?

  4. Man I think stock trading is risky as fuck, but if you know a lot about it, which you seems to do, then I guess it can be worth it.

  5. wow complicated im not really into stocks but this was interesting thanks