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Spread betting jargon explained

Although spread betting can seem scary thanks to the language used by brokers, once you get familiar with a few key terms it gets a lot easier to understand. Tim Bennett explains key terms you should know before getting started.

Don't be put off! Althoughspread betting can seem scary thanks to the language used by brokers, once you get familiar with a few key terms it gets a lot easier to understand.

What is spread betting?

Spread betting is simply a way of speculating on whether the price of an asset will rise or fall. You can gamble on everything from shares and commodities tostock market indices and house prices.

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The beauty is that you don't actually have to buy the underlying asset you want to trade. You just take a view on the prices offered by thespread betting provider as to whether the price will rise or fall.

Here are the key terms you should know before getting started:

TermWhat it means
ArbitrageTrading to exploit a pricing anomaly
BearSomeone who thinks prices will fall
Bid priceAnother way of describing a broker's buying price on a spread bet
Bid to offer spreadThe difference between the bid and offer prices. The wider this gap, the more expensive the trade
BullSomeone who believes the price of an asset will rise
Collateral Assets pledged as margin in place of cash
Contract noteAconfirmation of the key details of a trade
Day tradingPlacing up and down bets over a very short time span with a view to making quick profits
Fundamental analysisAnalysing shares or other assets using detailed analysis (typically including ratios) to decide whether they are cheap or expensive
Gearing/leverageThe ability to make large profits (or losses!) from a small initial outlay
Guaranteed stopAn order that ensures you get out of the market at an agreed price. This costs a bit more than a plain vanilla stop loss.
HedgingUsing a spread bet to protect the value of an asset such as shares
IndexAway of quickly summarising a group of similar assets into one number (e.g. the top UK shares are combined into the FTSE100 index)
Limit orderAn order that specifies a "no worse than" price to buy or sell
LiquidityThe ease with which you can open or close a trade. The greater the volume of trading in a particular asset, the higher its liquidity
LongAway of describing an opening up-bet, or a trade that buys the spread
MarginThe cash a broker will typically demand as a security deposit
Market orderAn order that gets you in or out of the market at the latest market price
Offer priceAnother way of describing a broker's selling price on a spread bet
Pairs tradeAtrade that uses two spread bets (typically one an up bet and the other a down bet) and is placed on two assets simultaneously
Resistance levelAprice that an asset usually struggles to break through
ShortAway to describe an opening down-bet, or a trade that sells the spread
Stop lossAn order that tries to get you out of a trade once losses hit an agreed limit
Technical analysisUsing charts to determine the direction of the market
Tick/pipThe minimum price movement in an asset recognised by the market
VolatilityThe extent to which a price oscillates. Highly volatile assets offer the scope to make bigger profits or losses

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