What's spread betting?
|Want to spread bet? Read this before choosing a brokerage
For those that had never hear about it, in ForexSQ we want you to know about this technique. Spread betting is a way of wagering on the outcome of a particular event, where the pay-off is based on the accuracy of the wager, and differs from a simple fixed-odds betting, in the fact that the payout is not pre-defined. Usually, the main purpose of spread betting is to create an active market for both sides of a binary wager, even if the outcome of an event may appear to be biased towards one side or the other.
Spread betting is largely accepted in the UK, where every single event, including sports matches or how many seats a political party will win in a general election, or even in things such as the outcome of the Brexit referendum, or the Grexit, is open to wager. But at the same time, is illegal in countries such as the US, Japan, or Australia to mention some of the major economies that forbid this kind of trading.
When talking about financial spread betting, we are talking about speculating over the movement of a particular asset - a currency pair, commodities, stocks, indexes, etc- without actually owning the asset. The degree of assertiveness determines the size of the profit, or the loss. When it comes to forex, you are pretty much speculating on the direction in which the price of a currency pair will move. If it does, your profit will grow in relation to the advance of the pair. If it goes in the opposite direction, the larger will be your losses.
Good news is that spread betting allows you to use stop losses. You have to pay a little extra, like an insurance, to limit the amount of money you can lose if the asset goes against your belief. It varies in size but usually is a 10% of your bet. When it comes to volatile assets, some brokers allow paying a bit more for a guaranteed-stop.
ForexSQ has quite a nice review on different brokerage firms that allow spread beating, with details of the top spread betting companies that include details on spreads, platforms and minimum stakes. You can see it here.
As always when trading, there's the risk that, despite you have analyzed all and every single variable that can affect the price move of any asset, things can go wrong. Just remember the SNB lifting the peg between the CHF and the EUR and the consequences it had all over the financial world. Don't bet money you can't afford to lose.
Accept that things can go wrong and that you can get it wrong: believe it or not, 99.9% of the times you are the one to blame, and not "the market," "price makers," or your broker. Step back, objectively analyze what is the main reason behind the fail, and start over. Perseverance is the key to success.
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