Trading News Just what is a spread?
Just what is a spread? |
| Written by Trader Hideout Editor | |||
| Saturday, 16 May 2009 13:23 | |||
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The way spread betting works is quite straightforward and fairly easy to understand. You simply select your market option and go long if you think the price offered is likely to be lower than your personal estimate, or you simply go ‘short’ if you think the figure offered is higher than your estimate. As an example, try to imagine how many sweets can fit in a particular container. If the financial spread betting company offers a figure of say 480 – 500 and you believe that their figure is on the low side, you would go long (higher).If you believe it will take less than 480, you would go short (low). When spread betting, you actually bet with real cash at a certain amount per unit, which in this example, is the number of sweets in the container. If you therefore went long at 500 at say £5 per unit and it later transpired that there was 520 in the bottle you would have been right. There were 20 sweets more than their prediction in the container. Having bet £5 per sweet you would win 20 x £5 = £100. If you had estimated wrongly and there was in fact only 480 sweets in the container, you would have over estimated by 20 sweets and would have lost 20 x £5 = £100. It should be noted that spread sizes will of course vary between markets depending on the liquidity, volatility and amount of freely traded shares of the product/commodity in the underlying market.
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