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Spread Betting Charts

spread betting is a type of financial derivative that lets a participant speculate or “bet” on the price fluctuations of an underlying asset, without having to actually own the asset. The underlying asset being speculated on can be a forex pair, stocks or market index. Essentially, you have to determine if the price of the underlying asset will rise or fall.

The magnitude of the rise or fall in the price will decide how you will profit or lose for the spread bet. On the surface, spread betting seems to be similar to trading binary options as the trader has to determine if prices will rise or fall. However, this is where the similarities end. Derivatives such as binary options are essentially considered fixed odds, as their payout is predetermined and fixed. With spread betting, the payouts are determined by the extent of the price movements. The more the price moves in your favor, the higher will be your payout. On the other hand, the more the price moves against you, the higher will be your losses.

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The Mechanics of Spread Betting
Let us assume that Google is currently trading with a sell price of $1000 per share and a buy price of $1001 per share. From your market analysis, you determine that Google stock is going to rise in the coming week in anticipation of a positive quarterly report. You decide to cash in on this opportunity and to go long at $10 per point on its current buy price of $1001. After a week and as you predicted, the price of Google stock goes up by a significant margin, with its new buy price at $1011. This means you earn a profit of 10 points or $100. However if you were to go short, the appreciation of Google’s stock from $1001 to $1011, this means you would have incurred a loss of $100 instead.

The term spread betting is actually derived from the difference between an asset’s offer price and its bid price. In the context of financial trading, the offer price is the trader’s buying price whereas the bid price is the price that the trader sells at.

Spread Betting Charts
Like traditional forms of trading, a spread bettor also requires the use of price charts to help them determine the ideal market entry and exit point. However the correct spread betting charts to use will depend on the type of asset traded. For a fast moving market such as the currency market, the ideal chart will be one that uses a short time frame. With equities, a spread bettor can use a medium time frame chart or long term chart depending on his particular trading strategy. The key reason why it is better to use a medium or long term chart with the equity market is the fact that prices of stocks are generally stable with gradual price fluctuations. With a short term time frame on the spread betting chart, it is difficult to filter out the “noise” in the market from an actual market trend.

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Spread Betting
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