... and is it Right for You?

Are you looking to earn a bit of extra money or have you been interested to learn how a part-time hobby may very well be able to evolve into a full-time position?  If so, spread betting is an interesting topic to consider.  The interesting this is that while many have heard of this term, relatively few are familiar with its mechanics as well as why it could very well represent a safer choice when compared to other forms of investing.  Let's take a look at how spread betting works, some of the primary associated assets and what to take into account before executing this type of investment.

A Look at How Spread Betting Works

The principle behind spread betting is rather straightforward.  You will essentially be predicting the future price of an asset based off of its present value and what you think will happen in the future.  The difference between these two numbers is called the “spread”.  As you might have imagined, spreads can be very wide or quite narrow.  Wider spreads are generally associated with a greater degree of risk due to the inherent volatility.  They could also represent long-term holds (such as where you predict the price of gold will be in three months).  On the other hand, narrow spreads tend to be more conservative investments, as the price of the asset will need to move very little in order to turn a profit.

Positive or Negative

One key point to appreciate is that there are some spread bets that can turn a profit even if the value of the asset in question goes down.  This is the main principle: your intention is to predict the movement and the direction as opposed to simply hoping that the price will rise.  In other words, you could be able to make money even if the markets are entering into bearish (negative) territory.  This principle is unique to spread betting and it is attractive to many traders.

What Assets are Involved?

The good news is that you will normally have a choice of a wide array of assets.  This is primarily determined by the company you have chosen to work with.  Some common possibilities include:

• Forex pairs
• Commodities
• Treasuries
• Stocks and shares
• Precious metals

Some of these categories such as commodities or precious metals can be associated with longer-term holdings while others including Forex (currency) pairs generally represent short-term positions.  So, there is indeed something here for everyone.

A word of caution still needs to be mentioned.  Much like any other form of investment, spread betting is not without its risks.  Wide margins can quickly lead to mounting losses that will inevitably eat into you existing capital base.  This is why it is prudent to sign up for a free demonstration account.  You will be able to learn the basic mechanics behind spread betting as well as which assets you feel the most comfortable trading.  Research is key if you hope to walk away a winner.