Spread betting is slowly becoming a hit with mainstream investors; those who have put money in stocks, shares, forex among others. Unlike shares that are only attractive when the market is on the rise, spread betting provides a profit potential for investors both when the market is going upwards and when it is on a downward spiral. Furthermore, there is no capital gains tax imposed on the proceeds from spread betting. The investor can be able to gain a huge margin by winning bets and at the same time lose a great amount of money. To be on the safer side, an investor needs to do everything possible to be on the winning side. One important method that can be used to gain an edge over other investors is to get knowledge about spread betting.

In addition, the investor needs to develop a strategy in which every possible outcome or scenario is taken into account. There are some strategies that can prove helpful for traders who want to obtain maximum gains from the spread betting. One such strategy is to obtain short shares. Obtaining a short share is when an investor sells highly priced shares and purchases them back at a lower price. The profit made will obviously be the difference between the two prices. However, it is important to have a system in place for predicting the direction in which the financial instrument is likely to take.

Another spread betting strategy is referred to as momentum trading. This is where a trade take place when the market is in an upward or downward momentum. This should only be done when the market is strongly active. In this scenario, it is important for the bettor to ascertain the number of shares being bought and sold in order for him or her to maximise on the gains. One final strategy that an investor might adopt is to trade in pairs. This is where the investor goes both long on one financial instrument and short on the other. Instead of placing a bet on a single side that is uncertain, there is a chance of making a profit on one bet or both rather than losing both bets.

The attractive thing about spread betting is that the investor can be able to make gains despite the movement of the financial instrument; whether it goes up or down. However, the investor must make a careful selection of the spread betting company.

Compared to traditional investment in the stock market, spread betting allows an investor to make well-informed trade. Spreading the bet on any of the financial instruments such as stocks, forex or commodities can enable an investor to invest more than five times the amount of money that is in the spread bet account. This means that any gain made on the spread bet is multiplied. For instance, if a trader having ₤100 purchases stocks costing ₤1000 and if the shares increases by 10 per cent, then the investor has made 100 pounds. Although there is a greater possibility of making profits from the spread bet, it is still a risky investment. There are times when the market can go in unexpected direction and cause the investor to lose substantial amount of money. Due to the risk involved, it is prudent to monitor the trend of the share and not to place too much bet on one trade. It is important to include both short and long-term trades in the investment portfolio.

In spread betting, the level of returns that investors are likely to make depends on a number of important factors. The first is the number of bets or trades made on the respective financial instrument. Of course, the more the number of trades made, the higher the chance of the investor to make profits. The number of trades can be based on daily, weekly or monthly basis. Another factor that will determine the actual return is the bet’s holding period. This is the average time difference between the trade’s opening and closing period, which could be in days or weeks. The final factor that will determine the return an investor gets is the average returns for each trade. If the return is high, then the spread bet is worthwhile.

In spread betting, it is important to keep good timing. This means knowing the correct time for making a deal on the instrument. For this to be achieved, the investor has to keep a watchful eye on the market and monitor the trend of the financial instrument. Compared to the usual buying and selling of shares, spread betting enables investors to achieve maximum returns. Whereas it might take months before a stock market trader gains from their investment, a spread bet can be able to produce quick returns within a shorter timeframe allowing the investor to maximise on the investment.

Spread betting is a relatively new investment activity that resulted mainly from the desire of retail investors to hedge their investment. The popularity of the betting is being attributed to the increase of day trading as well as online business transactions. It costs very little to open an account and with just few pennies, individuals are on their way to make extra earnings. Spread betting is considered a form of gambling rather than investment and thus it is risky as it allows an investor to have control over a large amount of financial instruments with a substantial amount of cash. Majority of spread betting companies concentrate on leveraged or highly geared accounts that allow investors having little capital in their accounts to manage a large sum of money.

Participating in spread betting requires one to understand how the spread bet works. Companies that deal with spread bets give a quote of two prices on a specific financial instrument. These instruments include stocks, shares, foreign currencies, commodities among others. The investor buys an instrument if its price is rising, then sells it at a much lower price thereby making a profit. If the instrument is predicted to fall, then the investor offloads it at a low price and makes a purchase when the price has gone up and in the end makes a profit.

Spread betting involves trading what is known as a derivative. In short, the trade is something that has been derived from a third market. The main market is where investors makes trade on actual shares, stocks and other financial instruments. Those who have invested in the stock market and have bought are shareholders of the company that sold the shares and have voting rights. However, in spread betting changes in the spread is dictated by changes in the stock market. A spread trader does not become a shareholder of the company thus; they have no voting rights and do not earn any dividends, if any. Spread bet companies will often quote several prices or spreads depending on the volatility and liquidity of the market.

Spread bets have a specific timeframe, which can be either in days, weeks on months. There are certain spreads that have an expiry period while others can be carried forward. Thus, it is important, for an investor to clearly understand the terms of the contract especially the timeframe of the spread prior to taking part.