Spread betting and spread trading enables you to speculate on financial markets by taking a bet on a specific instrument.
That is, instead of buying or selling, on underlying assets such as oil, gold or currencies, you simply take a bet on the price going up or down. Spread betting was invented by among others, Charles K. McNeil, during the 1940s.
Spread betting is a cost effective way to trade in the financial markets. With spread betting you can speculate on how the shares, indices, commodities and other assets will unfold, without using a traditional broker.
It provides the ability to generate substantial profits on both rising and falling markets. However, risks are very high, as some markets can be volatile in the short term due to high volatility, such as the price of copper or silver.
Since no brokers or exchanges are used, you pay no commissions or custodial fees. Spread betting companies earn money from the difference between bid and ask price spreads. With spread betting you just need to be out there with some percentage of their position, the safety margin.
The advantage of financial betting entails having to work from home, sitting at a computer. All that is required for work is a computer with internet access and an open account with a broker (betting company). One of the great advantages of this form of betting is the ability to speculate on both the ups and downs. Therefore you can either make money on a falling market, just like you can in a rising market.
This is where an alternative to the so-called hedging spread betting makes it possible to trade with smaller amounts than is usually possible, on the securities market.
Similarly, there it can also be possible to take larger positions than would otherwise have been possible without the deployment of large sums of money. The risk is that the you are exposed to greater than when dealing with traditional equities and there is a chance you can lose more than the initial amount.
The basic aim of spread betting is to establish an operational market for two sides of a binary wager. Since the spread is designed to produce an identical number of wagers on both sides, this means the implied probability stands at fifty percent on either side.
To derive a profit, the bookmaker should compensate one side or both with no more than the notional sum. In essence, spreads can be reckoned as somewhat favoring one side, and it is quite common for bookmakers to restructure the odds as a means of controlling their event risk.