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.

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!