Spread betting explained
Spread betting is simply a way of trading on a financial instrument without having to physically own it. You can spread bet on a wide variety of financial markets such as an index like the UK 100, individual companies such as Vodafone or commodities like oil – you can even bet on the prices of frozen orange juice and pork bellies. Spread betting allows you to make potential profits whether a market is rising or falling.
Use our Spreadbet simulator to see how you can trade on financial markets
Please note that this is a simulator only and there is no guarantee that results achieved using this service will be replicated when spread betting in the live CMC Markets Spreadbet environment. The amount of margin shown is for illustrative purposes only and differing levels of margin may be required depending on instrument type and other factors.
The stake
When you open a spread bet, simply choose whether the price of that instrument is likely to go up or down, and nominate in pounds what size your stake is (minimum bet size of £1). Your profit or loss is the difference between the price at which you buy and the price at which you sell multiplied by your stake.
So, for example, if you buy £5 a point on a share like Vodafone and the price of the share rises 20 points you would make (£5x20)=£100. However, if it falls 20 points you would lose £100. For a more detailed example, visit the spread betting example trade.
As you do not physically own the product, but bet solely on price movements, you can make potential profits from falling markets as well as rising markets.
Going long or short
If you think that a certain financial market will rise in value, then you ‘buy’ the product, known as ‘going long’, with the aim of selling it at a higher price. However, if you think that a financial market will fall in value, then you ‘sell’ it first, known as ‘going short’, with the aim of buying it back at a cheaper price.
Margin trading
Spread betting is a leveraged product which means that you are only required to deposit a fraction of the overall value of the trade. Typically margins with CMC Markets vary between 1% and 15%. Margin enables you to magnify your return on investment. However, losses will also be magnified so it is advisable to use one of the free risk management tools such as a stop loss or limit order that CMC Markets provides to help take control of your risk.
The spread
Prices of financial instruments are quoted in pairs known as the bid and the offer. The bid or ‘sell’ price is quoted first and the offer or ‘buy’ price is quoted second. The spread is the difference between the bid and the offer.
When opening or closing a bet, you buy at the upper end and sell at the lower end – a bit like changing your holiday money at a Bureau de Change.
If you were viewing the price of a share like Vodafone for example, it might look like this:
The price to the left is the sell price and the price to the right is the buy price
If our Vodafone spread is priced at 120.25/120.55, that means you could either:
Buy at 120.55 if you think Vodafone will rise in value or
Sell at 120.25 if you think Vodafone will fall in value
