Spread betting is a leveraged financial derivative, which enables traders to speculate on the future direction of a market’s price. You take a position based on whether you think the asset will rise or fall in value, and the accuracy of your bet determines the profit or loss when the position is closed.
To define spread betting, we first need to acknowledge the 'the spread': this is the term used to describe the difference between a buy and a sell price. Long positions return a profit if the price of the market moves high enough to cover the spread, while short positions return a profit if the price of the market drops enough to cover the spread.
When opening a spread betting position, you decide how much you would like to bet for each point of movement in an asset’s price. Your profit or loss at the close of the trade is calculated as:
Profit or loss = (£ bet per point x points moved) - charges to open and maintain position
