There’s a reason it’s called ‘spread betting’; whether it’s financial or sporting, the spread is an integral part of the betting process. We’re all financial spread bettors here though, so let’s stick to how the spread works for us.
Bid and Offer Prices
All markets feature a buy and sell price, these prices are also known as the bid and offer prices respectively – they mean the same thing. When you’re looking at a market, let’s take the FTSE 100 as an example; you will be given two prices, the bid price and the offer price. The bid price, the price at which you can buy the index and the offer price, the price at which you can sell the product, will always be different – with the former being higher.
i.e. If the FTSE 100 was trading at 5675, you might expect the bid (buy) price to be 5676 and the offer (sell) price to be 5674. The difference between the two prices is called the spread.
Why the Spread is Important
Taking the example above, let’s say that we are expecting the FTSE 100 index to increase in value. Our logic would be to buy the market and sell later on when the price rises. However, the moment we buy the FTSE 100 at 5676, we effectively lose the value of the spread as we can now only sell at 5674.
If you were betting at £1/point (and each point was a whole number) then we would instantly make a loss of £2 as we can only sell at the offer price and not the bid price. The spread therefore, makes turning a profit more difficult. It means that the moment we place a bet, we have to make back the spread before we can even begin to be profitable.
Spread betting companies are in competition to offer the lowest possible spread, some as low as 0.8. The spread will often differ from market to market, the FTSE 100 is usually very ‘tight’ whereas other markets may have much looser spreads. The spread is also where the platforms are able to make profit and lower their risk. If you can beat the spread, you will beat the markets.