Spread betting

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6. Other financial spreads

The variety of bets that can be placed on the financial markets is wide and widening all the time. Apart from individual equities and indices, you can also bet on:

• Sectors

  A bet based upon the performance of a particular market sector - such as telecoms or financials.

• Winners and losers

  A market revolving around the total number of shares which rise on a given day (winners) and the total number which fall on a given day (losers). These sorts of spreads are usually based on stocks within one index.

• Grey markets

  These are basically pre-float spread bets. Most IPOs do not have a retail tranche, so individual investors are excluded from buying at the most competitive prices. However, spread betting companies provide a solution by creating pre-IPO markets - known as grey markets. Basically, after researching the company about to float they create a market based upon what it thinks the closing share price will be at the end of the first day of trading. Retail investors can then either buy or sell the spread depending on their own view of whether the company's shares will perform better or worse than the spread suggests.

• Currencies

  The spread market in foreign exchange allows investors to bet on the exchange rate between two currencies. An indexation company might quote a spread of 1.4550 - 1.4590 dollars to the pound. If you think sterling is going to rise, you buy at 1.4590 and hope the spread rises.

• Commodities & futures

  Spread betting companies create markets in agricultural commodities (wheat, grain, cocoa, pork bellies, orange juice), industrial commodities like oil and gas, and metals. Prices can be very volatile which means there is big profit and loss potential. In the States there is a large community of private commodity traders and plenty of "how to" literature. But for the average private investor with no special experience, this is another "no-go" area.

• Traded options

  These markets work in exactly the same way as normal options markets. Many retail investors run a mile at the word "option" - just think Nick Leeson. But the principle is fairly simple. However spread betting through options is not for the beginner.

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

• The Investors Guide to Financial Spread Betting