The following is a guest post about the basics of financial spread betting…

Since financial spread betting is not conducted through an exchange, you have more flexibility when it comes to spread betting than you would with other financial derivatives.

Spread betting is used to speculate on price movements on underlying financial products – such as stock market indices.

Types of Financial Spread Bets

Spread bets are either long or short – if you are long, you believe that the underlying index will rise, and if you are short, you believe that the underlying index will fall.

The tighter the spread, the more you can maximize your profits, since the price movement to be profitable can be smaller.

There are also rolling financial spread bets, where you “roll” your position each day, but closing it and reopening it the next day.

Financial Spread Betting Styles

If you spread bet, you fall into four categories: day trader, short term trader, medium term trader, or long term trader.

If you are a day trader or short term trader, you are looking to profit from small market moves – usually less than 5%.  Typical trades will last minutes to days, and the trades are based on mostly technical price analysis of stocks and indexes, as well as potential news events.

If you are a medium term trader, you typically take a position that lasts less than a month.  Usually, the trader will make a trade based on some fundamentals and technical analysis combines.

Finally, a long term trader usually trades monthly or quarterly bets, and trades usually last several quarters.  This type of spread better looks for profits of 10% or more, and relies more on fundamentals than technical analysis.

Risks of Spread Betting

It is important to note that spread betting involves inherent risks of loss.  Since it is leveraged, the downside loss can be much more than the original value of the best.  It is important to use risk management strategies such as stop loss orders to prevent losses from going beyond acceptable levels.  Make sure that you employ risks management strategies with every trade.

photo by frankie_8