Monday, 21 March 2011

Spread Betting

I decided my first post should be about financial spread betting because for me I believe it to be the easiest way to make a lot of money from not a lot!

Traditional trading involves buying and selling financial products (be it equities, forex, futures or whatever). Trading in this way however can limit your potential gains as you are limited by trading fees and your return is only proportional to your investment.

So if I only had £70 and my brokers fees were £10 per trade then (at the time of this blog) I could purchase one stock of Lloyds Banking Group PLC for £60.
For me to make any money, Lloyds Banking Group PLC would have to increase in share price by nearly 17%. A large increase by anyones standards.

Spread betting is different however, it is a form of leveraged trading which allows you to make far more money (and of course, potentially lose far more) than traditional trading. Instead of your return being proportional to your investment, it is proportional to the change in the price of the financial product.

Whether you are buying penny stocks or a high value stock such as Berkshire Hathaway Inc, which at the time of this post is nearly $128,000. You bet on the change of price in points.

Here is an example:

If I believed that Berkshire Hathaway was going to rise in the coming days, I would not be able to invest traditionally in that stock because I havent the funds. I can however, through spread betting, and here is how I would go about it.

I would "buy" Berkshire Hathaway Inc for (lets say) $1 per point, at $128,000. I wouldn't need $128,000 in my account, I would simply need the deposit, which I will talk about in later posts, but for simplicities sake, let us say I put in $1000 originally.

If the next day it has risen to $129,000 then I could sell and make a $1000 profit, doubling my money!


I hope you have enjoyed my first post and hopefully learnt a thing or two. I will continue posting about spread betting in the coming days to give a full overview of the subject, then I can move onto some more advanced topics and trading tips!

7 comments:

  1. Wow. Super informative. You get a special spot on my Rss feed. :)

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  2. Nice, I have a small mutual fund but I don't have my hand in it all that much. I just check the Dow and S&P daily. I've only made about 200 bucks from it

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  3. Nice tips for betting, really helpfull

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  4. Thanks a lot for this, I've always kind of wondered how this stuff works.

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  5. This is really informative, I've learned quite a few important tips from this guide! Everyone loves to make money.

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