Financial spread betting is a financial derivative that allows investors to speculate on an asset’s price movements. These assets belong to the financial markets and can be any of the following:
The Basics of Financial Spread Betting
In financial spread betting, the investor can buy (go “long”) or sell (go “short”) a certain asset after he has analyzed where is the asset’s price going. For instance, if gold has a 1459/1460 (sell/buy) price, and you think the price will go up, then you will go “long” and place a bet of let’s say £5 for every point it rises from the original buy price, i.e. 1460. This means that if after some weeks the price rises to 1490/1491, you would be earning £150 which is the bet per point times the difference between the initial buying price (1460) and the final selling price (1490). Also, in case the price of gold goes down to 1424/1430, you would be losing £145 which is the bet per point times the difference between the initial selling price (1459) and the final buying price (1430).
As you have seen, bets aren’t really one-time events as in gambling. Rather, when you place a bet, you should open a position and then close it when you think it is time to do so as we have seen in the two examples above.
Is Financial Spread Betting the Same as Gambling?
Not really. With financial spread betting you are not – and shouldn’t – place your “bet” based on lucky guesses. This type of spread betting works more like stock trading in regards to the fact that investors should analyze news and patterns that could affect an asset’s value before making any decision. There are two main types of analyses made in financial spread betting. These are fundamental and technical analysis.
What is Fundamental Analysis?
Fundamental analysis is the study of the factors that could impact the price of a specific asset. For example, when companies in the stock market report good earnings, indexes such as the S&P 500 and the Dow Jones will go up in value. This is because these indexes represent the largest corporations in the market and good earnings usually results in an increase in the price of these stocks. As an investor, you should be reviewing news about the general market and also news that could impact the price of the specific asset or assets you are looking forward to placing your bet in.
What is Technical Analysis?
In technical analysis, the investor draws a series of patterns, figures, and trends on the chart of an asset’s price and then performs an analysis which will then allow him to decide if he should go for a “long” or a “short” position. The most important items in technical analysis are the trend, supports and resistances, trading volume, and moving averages among others. When used in conjunction, they give the investor a hint in regards to where the asset’s price will be moving in the future.
CMC Markets is one of the leading platforms in the world of financial spread betting. It has a wide range of markets with thousands of assets for you to place your bets in. It offers both a demo and a live account. With a demo account, you can start practicing without risking real money. The live account at CMC Markets has many beneficial features such as news and analysis from their team of economic experts. This will help you when deciding to go either “long” or “short” on a specific asset.