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.