Spread Betting enables share traders to profit from both the up and down movements of a wide variety of financial markets, including, but not limited to, stock indexes, currencies, individual shares, bonds and commodities.

Example

If you bought 'points' in a particular company when it was at 4200, risking $1 a point and then sold it when it rallied 50 points to 4250, your profit would be $50 (50 points x $1).

But if the index moved lower and you subsequently sold your bet at 4175 to take a loss, then you'd lose $25 (-25 points x $1). This is the difference between fixed odds betting and spread betting, your ultimate profit and loss with spread betting is never known until you liquidate the bet.

However you could also bet on the index going down, by what is called selling short. If you expecting the share prices to drop, then you could sell the index short at say the current market price of 4200, and then cover this bet or buy it back at 4100.

If your stake was $1 a point then your profit would be $100 (100 points x $1). Of course your view may well be incorrect and the price rises, and so you decide to take your loss by buying back your down-bet or short trade at 4225, so losing 25 points multiplied by your $1 stake, a loss of $25.

Spread betting is very flexible and Spread Bet brokers offer many markets and products to trade on, all following the same principle of betting dollars per point.

Two important points you must remember are:

• If you lose your capital you will be unable to continue spread betting, or will only be able to bet very small amounts.
• And if you lose 50% of your account, you've got to make 100% back just to break even.

This is elementary mathematics but many people don't realize this kind of predicament until it hits them and their account with drastic results.