Examples of Spread Betting
Though the sports and financial markets are similar in terms of how you trade e.g. betting on the outcome of a scenario, the ways in which you trade using spread bets differs slightly. For a full breakdown on financial spread bets, some providers will offer a financial spread betting guide to help improve your knowledge.
Here are some examples of the differences between financial spread bets and sports:
Betting on the spread in sport:
- Before the English Football season starts you anticipate that the total number of goals that will be scored throughout the season in the English Premier League will be over 1,100, up from 1,053 the year before.
- You place a bet at £10 per goal.
- This means that if 1,221 goals are scored, 121 goals more than you anticipated, you make £1,210 (121 goals x £10 a goal)
- However if only 1,050 goals are scored, you are subject to pay the difference between the goals scored and the goals you were expecting to be scored, in this case 50 goals (50 goals x £10 a goal = £500)
The financial spread bet equivalent of this is:
- You believe that shares in Nike will increase by 100 points from 800p a share to 900p a share.
- You place £10 a point on the stock going long (going up)
- This means if the stock rises from 800p a share you make £10 for every point it rises, so if the stock rises by 100 points to 900p a share, you make £1,000.
- The stock rises unexpectedly to 910p a share, which means, like the scenario above, it went over what you previously anticipated.
- Upon closing the trade at 910p a share you have made £1,110 (110 points x £10 a point) £110 more than you previously expected
- However, as with the example above, if the stock drops below 800p a share, you are subject to paying £10 a point for however many points the stock drops e.g. £200 if the stock drops 20 points
With regards to financial spread bets, losses can be limited and gains can be capped by putting stop-losses and limits on your trade. This means that, for example, you can put a limit of 100 points (so if the stock rises to 900p a share) or a stop-loss on 10 points (so if the stock drops to 790p a share) on the trade, so it is automatically ended should it reach those prices, capping your gain and limiting your loss.
Another form of sports spread betting with a similar financial spread bet equivalent is:
- You decide to back the Green Bay Packers (the underdogs) against the New England Patriots (the favourites) in the upcoming Super Bowl
- You are offered 3 points on the spread
- This means that if the Green Bay Packers lose, you still stand to win the bet providing the number of points they score + the spread offered, is greater than the number of points scored by the favourites
- Despite the Green Bay Packs leading the game at half time 9-7, the game ends with the New England Patriots winning 14-12.
- You have won the bet because the underdogs score, plus the spread offered is greater than the score of the favourite (12+3 = 15)
To get a better feel for spread betting, it might be useful to try a spread betting demo platform. A financial spread bet trade works like this:
- After reading over your research you feel that Apple’s shares will drop from 500p a share to 460p a share
- You therefore place a trade of £10 a point on the stock going short (going down)
- This means that if the stock drops below 500p you make £10 a point
- The stock drops, but only to 480p a share. However as you placed the trade on the stock going short, you still make £10 a point which is £200 on a running profit (20 points x £10 a point = £200)
- The stock rises and dips, going as high as 510p before dropping down to 472p.
- You close the trade at 465p a share.
- Although the stock has risen and fallen you are only liable for where the stock is at when you close the contract. So despite the stock rising to 10p over what you anticipated, it eventually dropped to 35 points in your favour, meaning your total profit from that trade is £350.
Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.