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Financial Spread betting gives investors the opportunity to trade the financial markets without ever taking physical ownership of the underlying instrument. This means that the trader/investors can speculate in the direction of any financial instrument, whether it is specific shares, currencies, commodities or indices without ever owning them. In the financial markets there are standard contract sizes. For example for the FTSE 100 index contract the standard market size is £10. With financial spread betting the investor nominates his own stake size, for example £2 per point. The bet is settled as the difference between the purchase and the sell price.

Financial Spreads is appealing to ever greater numbers of investors for several reasons, not least of which is the absence of capital gains tax on profits (unlike conventional share trading, where CGT applies to trading gains in many countries), and the lack of stamp duty on transactions (most interesting in the UK; strictly speaking, the transaction is a bet, rather than an investment. Hence the name.) However, by its very nature financial spread betting is more risky than traditional, fixed odds betting, or conventional domestic investment, where participants are usually a little more protected. If you judge wrong, you are likely to lose a great deal, and any losses made on a spread bet cannot be offset against capital gains on ordinary investments.

The costs associated with financial spread betting are included in the spread (the difference between the bid and the offer price). Therefore the wider the spread, the more you pay to trade. So when considering a company to spread bet always compare the Spread. The good news about the spreads is that these are generally getting tighter due to increased competition and explosive growth as investors are beginning to realise the advantages of financial spread betting; thus making the system more efficient.

Many people think that financial sprad betting is too risky. Subconsciously, they feel that investing in shares is ethically acceptable whereas betting has down market connotations and morally reprehensible. That is a pity, because the truth is quite different. You buy a share because you believe that the price will rise and you will make a profit. You bet on a share price for exactly the same reason. The only practical difference between buying a share, and betting on the movement of the share price is that you need much more ready cash to buy the share. The costs of buying a share are much greater than placing a bet.

You can control the risk of loss quite specifically when you place a financial spread bet so that you know the maximum amount of money that you could lose at the outset. If the underlying share price moved disastrously against you overnight, for example, you might lose the whole of your investment if you had bought the share. However, if you had placed a bet on the share and you had imposed a guaranteed stop-loss limit, you would limit your loss to a predetermined amount. A stop-loss is exactly what it is called - a limit to the amount you might lose. On the other hand, there is no limit to the amount you might win.

You can make money on a falling market, or on a share price that is steadily losing value. You know how depressing it is to see the price of a share that you hold in your portfolio dropping in price, day after day. Your hard earned wealth is being eroded and your financial worth is being eaten like rust corroding your expensive car, or creeping dry rot is reducing your house to a point when it becomes rubble and has no value. The current share settlement system does not allow you to sell a share that you don't own (called 'short' selling), nor will an execution only stockbroker or a bank accept instructions to sell a share until you have placed the share certificate in their hands, or unless they have evidence that the share is registered in your name. But you can bet that the share price will go down, or up, without having to own the stock in the first place. Volatile markets and fast moving share prices are now a permanent feature of stock markets throughout the world. Short term trading has become much more widespread than it used to be. Until recently only those working in the markets were able to take advantage of the rapid fluctuations in prices. Now, with modern technology and instant communication systems, everyone can make money out of trading.

Most specialist bookmakers providing a spread betting service will offer both deposit and credit accounts, but in either case, you will need to be aware of the Notional Trading Requirement. (Yes, it is as dull as it sounds, but you need to know about it, so don't skip this bit. Here goes...) The NTR is the minimum amount of money required by the bookmaker to open a new position, and is a risk figure applied to each market that the bookmaker quotes, and it is what they see as a fair reflection of the potential daily volatility of that market. The figure varies from market to market, but if, for example, you wanted to bet £5 per point on the FTSE futures market, the NTR could be 300 times your stake, which would make the minimum deposit required to run that position £1,500.

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