A stock broker normally quotes two prices when a trader wishes to deal in conventional shares. Of the two prices, the one that is lower is usually offered when selling shares, this is also known as the bid price. The remaining price, which receives a higher quotation from the broker is normally what one has to pay if the person is buying shares, this is usually referred to as the offer price. Therefore, a spread is the difference that normally comes about between the two quoted prices; the offer and the bid price. The spread bet principle shares the same concept as the two prices.

If an investor believes that an index, commodity, share or some other market will escalate, then that investor buys at an offer price. On the other hand, if the trader believes that a share will go down then the spread bet will begin from the bid price. When a bet is placed, a trader is asked the amount that the trader wants to wager; be it per penny or per point. For instance, if one was betting on UK shares in ten pounds, the persons can either lose or win the same ten pounds for every penny when the share price undergoes a change.

One very essential thing that novice traders need to take note of is that although ten pound may seem to be very little; one can either lose or win for each penny as the stock changes. If shares suddenly slump or soar in an announcement, a trader will either make a great loss or a win. It is advisable for beginners to start small in a spread bet and then gradually build up. The bet remains standing until the trader chooses to close it up. This means going back to the spread broker to take the latest offer and bid price available.

One other important thing to consider in a spread bet is that a trader has the freedom of using a stop loss. This means that the trader does not have to monitor the market round the clock. The trader can simply set a price, which will close the bet automatically. Even though the concept may be hard to grasp at once, it is very important to understand it to be able to make profits. One major advantage about spread betting is that the profits made are not subject to capital gains tax.