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Day trading options, spread betting is one of the many instruments we have.

Day trading options:

Spread betting is one of the many instruments we have.

Spreadbetting offers an alternative route to traditional trading on financial markets. It works with the trader ‘betting’ on whether the price of a stock, index, commodity or currency pair will go up or down.

Traders can make vast, and currently UK tax-free, profits from speculating on whether the values of these individual markets will rise or fall over any chosen time period. Spreadbetting allows traders to make profits on price movements either up or down, meaning that it traders can still make money when the price of a chosen stock falls this add up to the many day trading options we have in terms of instruments.

The principal difference between Spreadbetting and traditional trading is that the trader will never actually own any of the shares, commodity or currency that they trade. In traditional trading these are often bought in expensive bundles, or lots, which give ownership of the asset to the trader.

Spreadbetting, however, allows a trader to place a bet-per-point on the underlying market price. The trader places a stake per point for every incremental move up or down of the market price.

This forms the ‘betting’ aspect of spreadbetting, however, trades are not necessarily taken as a blind gamble but is the result of careful analysis which the trader believes offers a high-probability of success.

The reason spreadbetting incorporates the word ‘spread’ is due to the price at which all trades can be placed differs slightly whether the trader is buying or selling an underlying market.

The ability to trade either long (making money on a price rise) or going short (making money on a price fall) allows traders to capitalise on both rising and falling markets. For each direction traders are quoted a slightly different price and the difference between these two forms the ‘spread’.

An example of this is Next Plc. where the buy price may be 2739p and the sell price may be 2735p. This means that in order to place a spreadbet to go ‘long’ £1-per-point the trader would need the sell price to rise above 2739p in order to realise a profit. If the sell price moved to 2747p then the trader would have made an £8 profit.

Like any financial speculation, spreadbetting, or any for of day trading options out there has an element of financial risk. It is important to understand this before you learn how to bet in order to give yourself the highest possible chances of success.

Managing your risk and the exposure of your available capital is absolutely essential regardless of how you intend to trade. Despite its name, spreadbetting is an exciting form of speculation and the rewards can be high if you treat it as a business rather than as a form gambling.

Spreadbetting companies will often require that traders place a deposit in their accounts before they begin trading and they will often only allow you to risk the amount that you have available.

With the use of stop-losses traders can place higher-value bets; although it is worth remembering that these are often not guaranteed and can be subject to slippage in volatile markets.

Article courtesy of Andy Richardson

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