How spread betting works
Spread betting may seem daunting to the beginner. Here’s a step-by-step guide on how to get started with spread betting, ideal for traders with no previous experience in the financial markets.
- Select a market
The first decision a trader has to make to get started is pick the markets he is most familiar with. Whether that’s forex, indices, commodities or cryptocurrencies a ThinkMarkets account gives you access to a wide range of markets to spread bet.
- Decide to go long or short
Let’s suppose that you choose the GBP/USD market. If you think that the sterling will appreciate against the US Dollar, you will buy, also known as going long. If, on the other hand, you expect the sterling to fall against the US Dollar, you will sell, also known as going short.
- Determine you trade size
The size of your position determines how much you make or lose per pip movement.
- Close your trade
Once your position is open, you can see your profit and loss (P&L) live on your account. You can exit your position at any point from Sunday evening to Friday evening by clicking on the close the trade option.
Spread betting examples
Going long on GBP/USD (winning scenario)
Let’s suppose that your technical analysis indicates that the GBP/USD market is about to move higher. For that reason, you decide to go long (buy) GBP/USD at the price of 1.3326 with a stake of £3 per pip movement. This means, that for every pip movement in the price, you make or lose £3.
The market soon moves in your direction and is now trading at 1.3414. You decide to close the trade and book your profits. Since you were trading at £2 per pip, the profit of this position is calculated as follows: (1.3414 – 1.3326) x £3 = £264.
Going short on EUR/USD (losing scenario)
Now let’s take a look at the how a trade would work out, if you think a market is about to fall. EUR/USD is trading within a set range for three days and it is currently close to the top of that range. You expect the market to move lower towards the bottom part of the range soon. To take advantage of this move you open a short position (sell) at 1.1894 with a stake of £2 per pip movement.
During the US session, a news announcement brings fresh volatility to the markets causing the EUR/USD to move higher instead. The pair is now trading at 1.954 and you decide to cut your losses and exit the trade. The loss of the position is calculated as follows: (1.1954 - 1.1894) x £2 = £-120.