Spread betting jargon explained
By
Deputy editor
Tim Bennett Jan 22, 2010
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Don’t be put off! 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.
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 to stock 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 the spread betting provider as to whether the price will rise or fall.
Here are the key terms you should know before getting started:
| Term | What it means |
|---|
| Arbitrage |
Trading to exploit a pricing anomaly |
| Bear |
Someone who thinks prices will fall |
| Bid price |
Another way of describing a broker’s buying price on a spread bet |
| Bid to offer spread |
The difference between the bid and offer prices. The wider this gap, the more expensive the trade |
| Bull |
Someone who believes the price of an asset will rise |
| Collateral |
Assets pledged as margin in place of cash |
| Contract note |
A confirmation of the key details of a trade |
| Day trading |
Placing up and down bets over a very short time span with a view to making quick profits |
| Fundamental analysis |
Analysing shares or other assets using detailed analysis (typically including ratios) to decide whether they are cheap or expensive |
| Gearing/leverage |
The ability to make large profits (or losses!) from a small initial outlay |
| Guaranteed stop |
An order that ensures you get out of the market at an agreed price. This costs a bit more than a plain vanilla stop loss. |
| Hedging |
Using a spread bet to protect the value of an asset such as shares |
| Index |
A way of quickly summarising a group of similar assets into one number (e.g. the top UK shares are combined into the FTSE100 index) |
| Limit order |
An order that specifies a “no worse than” price to buy or sell |
| Liquidity |
The ease with which you can open or close a trade. The greater the volume of trading in a particular asset, the higher its liquidity |
| Long |
A way of describing an opening up-bet, or a trade that buys the spread |
| Margin |
The cash a broker will typically demand as a security deposit |
| Market order |
An order that gets you in or out of the market at the latest market price |
| Offer price |
Another way of describing a broker’s selling price on a spread bet |
| Pairs trade |
A trade that uses two spread bets (typically one an up bet and the other a down bet) and is placed on two assets simultaneously |
| Resistance level |
A price that an asset usually struggles to break through |
| Short |
A way to describe an opening down-bet, or a trade that sells the spread |
| Stop loss |
An order that tries to get you out of a trade once losses hit an agreed limit |
| Technical analysis |
Using charts to determine the direction of the market |
| Tick/pip |
The minimum price movement in an asset recognised by the market |
| Volatility |
The extent to which a price oscillates. Highly volatile assets offer the scope to make bigger profits or losses |
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