Spread Betting

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DEFINITION of 'Spread Betting'

A type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price (also called the spread), and investors bet whether the price of the underlying stock will be lower than the bid or higher than the offer. The investor does not own the underlying stock in spread betting, they simply speculate on the price movement of the stock.

BREAKING DOWN 'Spread Betting'

For example, assume that a spread-betting company quotes a bid of $200 and an offer of $203 for ABC stock and you believe that the price for ABC will be lower than $200. Since you believe that the price of the stock would be go below $200, you could "bet" $2 for every dollar that ABC falls below $200. Therefore, if the stock price after a week came to $190 you would receive $20, but if the price was $215 you would end up losing $30.

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RELATED FAQS
  1. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  2. What are the biggest risks involved with financial spread betting?

    Financial spread betting is a type of financial derivatives product used to speculate the price movements of a security. ... Read Full Answer >>
  3. What are some examples of financial spread betting?

    Financial spread betting is available across a wide array of markets. Financial spread betting is primarily aimed at making ... Read Full Answer >>
  4. How is spread calculated when trading in the forex market?

    First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Full Answer >>
  5. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

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