Three ways to spread bet on shares

Once you master the basics of spread betting, it's well worth taking some time to explore the many ways a bet can be placed. For example, anyone punting on shares has at least three ways of doing it. Tim Bennett explains.

Once you master the basics of spread betting, it's well worth taking some time to explore the many ways a bet can be placed. For example, anyone punting on shares has at least three ways of doing it.

Single shares

Perhaps the most obvious way to place a spread bet is to pick a company and then put an up or down bet on the direction of its shares. The choice of companies available through a typical broker is huge and encompasses the UK plus overseas markets such as the US (so it can be a handy way to get cheap exposure to foreign shares). So for example you could choose to place an upbet on BP at an 'offer' price of, say, 433p for £10 a point (each 1p movement in the share price). If the stock rises, and the 'bid' price at which you close out the bet is, say, 455p, you make a gain of 22 points (455-433) at £10 a point. That's £220.

An index

Alternatively, you could bet on the direction of the wider market by betting on an index that represents a group of shares. Take the FTSE 100. You could open a bet at £10 per point when the 'offer' price is, say, 5,778 (points) and close it when your broker's bid price is, say, 5,790 (again, assuming you get the bet right and the index rises). If your bet size is £10 per point, you make 12 points (5790-5778) all at £10 per point, which is a profit of £120.

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A sector

If you like your group bets a little more targeted, why not pick out a sector, such as oil companies or miners, and bet on that? Pairs traders can go a step further. Say you believe that Tesco is the most promising stock among the food retailers. What you could do is place an upbet on Tesco and a downbet on food retailers. That way, if Tesco outperforms its peers while the two bets are open, you make money. In this instance, even if the Tesco price falls, as long as the food retailer sector falls by more, you'll still make money the key is that Tesco does better than the wider sector.

But always remember spread betting is very risky. In all three cases, should the bet backfire and the relevant share or index start to drop, you can lose money fast. So always keep bet sizes low initially and use stop losses to limit any potential damage.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.