Spread betting or spread trading allows a user to speculate on financial markets by taking a bet on a specific instrument. Rather than buying or selling an underlying commodity as oil, gold or currencies you take a bet on the price to go up or down. Spread betting works much the same way as the so known CFD (Contract for Difference). Spread betting has existed in England since the 1970s when people wanted to speculate the price of gold. There are many similarities with other Financial Instruments although it is classed as a financial game or gamble in England. Spread betting is a cost effective way to trade the financial markets. With spread betting you can speculate on how shares, index, commodities and other assets will develop, without using a traditional broker. It gives the ability to generate substantial profits on both rising and falling markets. However, the risk is very high, as some markets can be volatile in the short term due to volatility of their coefficients a perfect example is the price of copper or silver.
Since no brokers or exchanges are used, you pay no custodial or brokerage fees. Spread betting companies earn their money (commissions) on the difference between bid and asking price spreads. With spread betting you only need to be laid out with a few cents per position of the safety margin. One of the great advantages of spread betting is the ability to speculate on both the up and downturns of a specific commodity. Thus, one can make money on a falling market, just like you can in a rising market. This then is an alternative to the so-called hedging spread betting which makes it possible to trade with smaller amounts than usually possible, otherwise on the underlying market. Similarly, it might also be possible to take larger positions than would otherwise have been possible without the deployment of large sums of money. The risk that the user is exposed to greater than when dealing with traditional equities and users can lose more than the initial operation.