Spread betting

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15. Dynamics - length of bet

When you place a basic spread bet, your bet doesn't go on for ever, but has a predetermined finish date. It has a "time to maturity".

The length (or "term") of the contract will be quoted by the indexation company along with the spread prices. For instance, on 1st August it might quote:

September FTSE100: spread 6100 - 6110

If you buy at 6110 or sell at 6100 on 1st August, the day of reckoning for your bet will come a month later on 1st September. On that day the indexation company will compute your profit/loss based on the difference between the old spread and the new spread, and will either credit or debit your account accordingly.

As we shall see on the next page, you can crystallise your profits or losses early by placing a second bet in the opposite direction to the first, but if you don't do this you will be exposed for the whole term of the bet.

The concept of a bet having a certain "life" begs the question of whether you should concentrate on bets that last only a few days or bets that last a few months. The answer depends on a variety of issues, including the item you're betting on (shares, index, currency, commodity), your skill and knowledge, your view of the market, your cash resources and so on.

What can be said is that if you focus on bets that last only a few days, you are likely to be placing more bets, more frequently. That's not necessarily a bad thing - indeed, one of the attractions of spread betting is that you can trade frequently without incurring broker's commission charges - but for the beginner it is important not to overtrade.

So are longer bets better then? Not necessarily. One of their disadvantages is that they tie your money up because indexation companies usually freeze an amount equivalent to your maximum loss until the outcome of a bet is decided. This can prevent you from taking advantage of other value opportunities. Experienced clients get credit facilities on their accounts, but beginners don't (and shouldn't).

Perhaps the best that can be said about the "length of bet" issue is that you should be aware of the advantages and disadvantages of short and long term bets. And you should consciously adopt a strategy that suits your resources, temperament and skills.

1. What is spread betting? 2. A brief history 3. Spreads on individual equities 4. Spreads on an index 5. Performance spreads 6. Other financial spreads 7. Practical advantages - leverage 8. Practical advantages - going short 9. Practical advantages - hedging 10. Practical advantages - volatile markets 11. Practical advantages - tax 12. Dynamics - think short term 13. Dynamics - the size of the spread 14. Dynamics - upside and downside 15. Dynamics - length of bet 16. Strategy - bet only what you can afford 17. Strategy - cutting losses 18. Strategy - stop losses and limited risk bets 19. Strategy - taking profits 20. Strategy - arbitrage 21. Opening an account 22. Placing a bet and managing your account 23. Regulation 24. Some more tips 25. Conclusion

• Financial Spread Betting
• The Beginner's Guide to Financial Spread Betting