How To Make Money From Spread Betting

How To Make Money From Spread Betting

Tim Smith has 20+ years of experience in the financial services industry, both as a writer and as a trader.

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Timothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. Timothy has helped provide CEOs and CFOs with deep-dive analytics, providing beautiful stories behind the numbers, graphs, and financial models.

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Some brokers categorize clients into two categories: A-book clients who are mostly successful and B-book clients who typically will lose all of their deposit. Instead of sending bets from B-book clients to market, the broker might actively bet against them and take the winning side of the trade. Traders should find a spread-betting company that doesn't trade against its clients. Instead, the company makes its money by matching positions among clients and generating revenue from the spread. Another way spread betting firms make money is when clients pay holding fees to carry a position overnight.

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Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security.

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The foreign exchange, or Forex, is a decentralized marketplace for the trading of the world's currencies.

A haircut is the percentage difference between what an asset is worth relative to how much a lender will recognize of that value as collateral.

A forex trading strategy is a set of analyses that a forex day trader uses to determine whether to buy or sell a currency pair.

One of the simplest kinds of wagers, a money line bet tries to pick the winner.

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Many investors wonder how financial spread betting companies make money when they don't charge brokerage fees on bets placed. Below we look at how spread betting companies generate revenue, whether they make money from spreads (or whether they profit by trading against their clients), and what investors should look for when choosing a broker.

Spread betting is a lot like gambling in that an investor speculates which way security prices will move. Rather than buying or selling (or owning) the asset, the investor will try to guess whether its price will move up or down during a certain period of time, based on the buy and sell prices offered by a broker. As an investor, you make your bet on whether you think the price will rise or fall. The more it moves, the more profitable it is for the investor and, therefore, for the spread betting company.

One thing to keep in mind: financial spread betting is illegal in the United States. It is, however, legal in the United Kingdom. 1

First and foremost, spread-betting companies make revenue through the spreads they charge clients to trade. In addition to the usual market spread, the broker typically adds a small margin, meaning a stock normally quoted at $100 to buy and $101 to sell, may be quoted at $99 to sell and $102 to buy in a spread bet.

The buy price is always higher than the sell price, ensuring the broker makes a profit from the spread, whether the client wins or loses.

Brokers categorize clients into two separate categories, or their A book and their B book. Traders who have a track record of losing money are placed into the broker's B book. Bets from B-book clients are not sent to the market. Instead, the company actively bets against them. In this scenario, the broker stands to win when the client loses, and vice versa. Since studies show that 82% of traders lose their deposits, this model has proven to be extremely profitable. 2

There is, however, some risk involved with backing B-book clients. Spread-betting companies have risk limits, and if too many clients bet in one direction, these limits are breached. Brokers must then hedge their bets to restore risk to an acceptable level. Brokers avoid hedging B-book clients unless absolutely necessary, because they are effectively paying for another spread, therefore increasing bottom line costs.

A-book clients are a similarly dependable stream of revenue and provide opportunities to capture commissions. They trade enough that risk is substantially lower than B-book clients, and they often enjoy a relationship in which they are trusted to expose the market (and not the broker) to risk. Such clients are often charged a premium on the standard spread, or a specially negotiated fee.

However, IG Group , a spread betting company based in the United Kingdom, says it doesn't profit off the backs of its clients—especially those who are unsuccessful in their trades. According to its website, the firm says its clients mainly offset each others' positions, so when one client buys one lot of an asset, another one sells another lot, which covers both sides. Since there is no exposure to either client's profit or loss, IG says it makes its money off that spread. 3

Spread-betting companies allow their clients to continue trading throughout the global trading day, Monday to Friday, from the time the Asian session opens to the time the New York session closes. The flipside is that spread-betting companies typically charge a holding fee to carry a position overnight.

Beginners often get distracted by an attractive spread and miss these ongoing trading costs, which in time are likely to erode profits. It is therefore in the best interests of the broker to keep clients holding positions as long as possible, as they stand to generate more revenue from associated fees.

Spread-betting companies are subject to strict regulations worldwide. The European Securities and Markets Authority (ESMA), for example, passed and enforced regulations that limit certain types of financial betting. In 2018, ESMA upheld a ban on the sale of binary options to retail customers, which may change some investors' interest in spread-betting companies. 4

Spread-betting companies obviously make a lot of money, but how can a beginner get involved? The first step is choosing the right broker, sometimes a misstep for overeager traders who often squander their initial deposits. The markets may move against a trader, but more often than not, it is the choice of broker that determines overall success.

Does the client bet on commodities or interest rates? How important is customer support? Which broker has the lowest spreads? These are important concerns when considering which spread-betting company to choose. The other thing to consider, especially if you're new to the game, is a broker that offers a demo account. This allows you to practice how to spread bet without the stress of losing money.

There are a number of different companies that allow investors to open up accounts and begin spread betting. Here are a few:

Founded in 1974 solely as a spread betting business, IG Group is based in the United Kingdom. The firm now provides investors with other services including online forex and share trading. IG Group also offers demo accounts to new clients. It claims to have more than 178,000 clients worldwide. 5

Intertrader was founded in 2009 and is part of Entain, a publicly traded sports betting and gaming company. Intertrader says it is a "100% market-neutral broker," meaning it never trades against its clients. Along with spread betting, the company offers forex and contract for difference (CFD) trading. Intertrader promises new investors a risk-free spread betting environment with its demo account. 6

ETX Capital was founded in London in 1965. The firm's areas of specialty include spread betting, forex, options, commodity, equity, and bond trading. New investors can sign up for a demo account to practice their trading strategies before jumping in. 7

Taking advantage of online spread-betting comparison resources, using price comparison tools and keeping a level head means that a trader can feasibly share in the wealth that spread-betting companies have created. But knowing how companies work and choosing the right one for you is crucial if you're going to succeed. Make sure you do your research before you commit to a platform.

The London School of Economics and Political Science, Centre for Analysis of Risk and Regulation Magazine. " Spread Betting 101 ."
Intertrader. " About Intertrader ."

May 4, 2020 September 12, 2017 by Charles
Here at The Sure Bettor, we’re always on the lookout for great ways to make a profit from betting. You may not have heard of spread betting but we’re going to have a look at it today.
Spread betting is the process of placing a bet on a market to move in a given direction. Your profit depends on how much the market moves. Fixed-odds betting has a win/loss outcome.
The bettor knows how much they’ll win or lose depending on the result of the event. In spread betting, you predict which way a market will go.
If you predict correctly your profit increases in relation to how far the market goes. If you pick the wrong way your loss will increase with how far the market moves.
Betting on the price to increase is called going ‘long’ and betting on the price to decrease is called going ‘short.’
As you can see it’s quite a risky method. Your losses can far exceed any profits and it’s almost a complete gamble whether a price will increase or decrease.
Spread betting can also be used as a way of investing. An investor can stake money on a share price increasing or decreasing, the same as a betting market.
As the investor never owns any of the stock there is no capital gains tax to be paid on any profit so it makes spread betting rather enticing.
According to Tom Ryan, Director of Barclays Stockbrokers ‘17% of active investors are now using spread betting platforms.’ This is no longer just a method for city brokers but for anyone interested in investing.
However, as we’ve already said it’s a rather risky strategy and very few spread bettors are successful in what they do!
Sporting Index, one of the leading sports spread betting companies, recently launched the first spread betting app on Google Play Store.
This just goes to show that spread betting is aimed at a very wide consumer base. According to Jamie Adams, Product Manager at Sporting Index, there are several ‘innovations in the pipeline.’
I’m surprised there is so much interest in spread betting and it will be interesting to see where the industry heads next due to its inherent risks.
To answer the main question of this article: Yes, you can make money spread betting but we don’t advise it. There are too many risks involved.
In our honest and maybe slightly biased opinion matched betting is a much better way to make money online. There is no risk involved and all of our profits are tax-free. Granted, the winnings may not be as big as they can be in spread betting but our losses certainly won’t be painful.
If you’re looking for a great way to make a second income online matched betting is your answer. With expert help from sites like The Sure Bettor , you’ll be a pro in no time.
Sign up for a free trial today and see for yourself how awesome matched betting is. We’ll hopefully see you on the inside of the fastest growing matched betting community soon.
If you are concerned about gambling at any point, visit either of these sites:

Can you make money from financial spread betting?

Trading / By
Richard Berry

/ 18th May 2022 1st September 2022
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.
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It is possible to profit and make money spread betting on the financial markets, if you buy low and sell high, or sell high and buy low. But as with any form of short-term leveraged speculating on the financial markets it may be harder than you think.
If you look in our comparison tables of spread betting platforms you can see that less than 30% of retail traders make money spread betting.
I have worked in the spread betting industry for more than 20 years as a broker, research provider and reviewed and there are some common themes that are consistent in profitable spread betting traders. In those two decades I’ve dealt with all sorts of clients from absolute beginers to large institutional hedge funds and from that here are some tips on how you can increase your chances of making money from financial spread betting.
The simple answer to this is yes. Spread betting provides access to an unprecedented range of markets. The simple fact of the matter is that markets do one of two things. They either go up or go down. It is the rate at which they do so and whether you pick the right direction that determines if you make money.
Spread betting is not like placing a normal bet where your losses are capped at the initial stake. You are betting a certain amount per point move of an asset.
If the asset is priced at 100, it means that if it goes to 0 and you have bet £1 per point, you can lose £100. So for a £1 bet, your potential downside is 100x your stake.
On the plus side, if the price goes to 500, you make £400, which is a monster return for a £1 bet. You can read our article on how spread betting works here .
Making money from spread betting isn’t something that just happens, you will need to plan and to stick to a strategy to stand the best chance of making money from spread betting. Many spread betting and CFD traders lose money .
You will also need to budget carefully and do your research before you begin.
One of the most important factors in spread betting is choosing a broker you are comfortable and happy with. A good broker can offer much more than just the ability to make trades but also advice, educational tools, strategies and market insights.
There are many factors involved in choosing the right broker, including; liquidity, financial stability, range of markets, spread width, and educational and research tools. Read our guide on how to choose the right spread betting broker before you open an account.
There are some key principles that all spread betting traders should adhere to if they want to make money.
If not, you may find that paying a bit more attention to your strategy, discipline and objectives will make a big difference.
A strategy is key to spread betting. Having a clear idea of how you want to trade will give you the best chance of maximising profits and reducing losses.
If you are just getting started in spread betting and looking for a basic strategy that promotes good trading, we’ve put together a quick summary of three simple strategies that should help you find your feet.
It’s tempting to smash straight into the market and trade as large as possible. But this is the quickest way to lose your money. When you get started, bet small amounts relative to your account size. This means that if you have £1,000 in your account, allocate no more than 10% of that to the margin of each trade and keep at least 50% free for variation margin (covering your profit and loss).
The principle is the same if you are trading with £100k. You shouldn’t use more than 50% or £50k as an initial margin or have a single position that accounts for more than 10% of your account. Spread betting brokers provide access to well over 3,000 instruments to trade and having a diverse range of positions will spread your risk.
If you have two large positions and one moves against you, it can quickly wipe out your account. Having lots of small positions will help you manage your profit and loss more effectively.
The most important part of any spread betting strategy to remember for beginners is to always cut a losing trade and run profitable ones for longer.
The best traders in the world only get it right about half the time, but what makes them good traders is that they are not in a rush to take profits, and realise when they have called the market right to let a position run and bank big wins. If you call a trend or reversal well, there is more to be gained from adding a trailing stop and profit limit than taking a quick turn and looking for another opportunity.
Equally important is cutting losses. Like profitable trades left to run, possibly equating to big profits, losing trades kept open with the hope of recovery can lead to large losses.
If a position or trade is not doing what you hoped, cut it out and keep your powder dry, and move on to the next trade.
As spread betting is commission-free (the charges are built into the spread and overnight fee), it’s easy to become complacent about which broker you use.
Tight spreads and low financing charges are the key to efficient trading. If you are jobbing in and out of p
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How To Make Money From Spread Betting

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