Spread & tick (Pips) is a derivative product, which means you don’t take ownership of the underlying asset but speculate on whichever direction you think its price will move – up or down. If your prediction is correct, you could profit, however if the price moves against you, you would incur a loss.
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What is spread betting?
Spread betting is a tax-free financial derivative that enables you to speculate on a huge range of financial markets, such as forex, indices, commodities, shares and bonds.* And, as you don’t take ownership of the underlying asset, you can take advantage of markets that are falling as well as rising.
Being able to trade in both directions gives you a much wider range of opportunities than traditional buy-and-hold investing.
What do ‘long’ and ‘short’ mean in spread betting?
Spread betting enables you to speculate on markets that are decreasing in value, as well as those that are increasing. So, while you could opt to mimic a traditional trade that profits if the underlying asset rises in price – known as ‘going long’ – you could also open a spread bet that will profit if the underlying asset falls in price, known as ‘going short’.
Let’s say you thought the price of gold was going to decline, so you decide to go short by opening a spread bet to ‘sell’ the underlying market. The loss or gain to your position would depend on the extent to which your prediction was correct. If the market did decline, your short spread bet would profit. But if the price of gold increased instead, your position would make a loss.