Financial spread betting is a massively growing industry. Starting with IG Index in the 1970s, it is now available through a wealth of different providers. One of the main reasons for this growth in popularity is because financial betting lets bettors bet on declining markets, something we are seeing right now in the recession. But what is it?
Betting on the financial spreads is different from normal betting at a traditional bookmakers. Instead of betting on a final event, you are buying points. It is easiest to explain with the use of an example.
Traditional Bookmakers
Two scenarios
* Winning: You bet £10 on a horse at odds of 5/1. It wins! You claim your winnings £50 + your original £10 stake.
* Losing: You bet £10 but the horse loses. You lose your original stake of £10.
Spread Betting
1. Your stake is £10 per point and you buy FTSE 100 index at 3000.
2. The FTSE 100 index rises by 100 points.
3. You decide to sell/end the bet. You win £10 per point risen (100×10 = £1000).
BUT: If the FTSE 100 index falls by 100 points, you have lost £100. It is at that point that you must decide whether to sell and take a loss, or hold your bet and wait for a recovery. This is the element of danger involved in financial spread betting. You can win money very quickly, but you can lose more money even faster! It is a game to always play with caution.
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