I did a post earlier last week on different trading options you have. Another way to work with stocks is by attempting financial spread betting. I say attempting as at the end of the day it is a form of betting. It’s basically a tax free way of speculating on the stock exchange. You’re simply betting on whether you think a stock price is going to go up or down. You can bet on a particular index, share, currency, commodity or sector which pretty much covers everything.

Financial spread betting comes with its own terminology too so be warned. You might have to do a bit of reading up on the subject before you dive in and start placing your bets. You place an ‘Up’ bet when you think a price will rise. It’s also called a buy or a long position. If you think a price is going to go down you place a ‘Down’ bet which is referred to as a sell or a short position. Not that complicated right? It gets a little harder when you have to work out what to bet and what your winnings are. It’s all based on a points system. At the start of the bet you decide how much you want to risk per point. This is really as large and as small as you like. Bets work on either a daily, rolling or contract month basis. A daily bet is exactly as it sounds. It last for a day. So when the trading stops for the end of the day your bet closes too. A rolling bet will carry on to the next day. This type of bet may cost you a little more money so it’s always worthwhile to check this out before you place the bet. A contract month is more long term and can last up to 3 months in the future. The date which the contract expires is set at the beginning so everyone knows where they stand.

If you’re just starting out buying stocks then maybe the contract month option would be the best for you. It gives you a little more breathing space for your stock to pick up in price if you’ve had a bad month.

An example of a trade would be to bet that the FTSE 100 will go higher than 2000. The bookmaker may offer you 2010 and 2020 as the spread. If you want to go long you can go for 2020 but if you want to go short you can bet 2010. The spread here is 10 points and that’s where the name of spread trading comes from.

So what are my thoughts on financial spread trading? Well it’s gambling at the end of the day isn’t it? I’m always going on about how I don’t like to gamble my money. In theory I guess you could apply the value investing technique to identifying undervalued stocks and purchasing them in the hope that the price comes up. On the other hand is three months a realistic timescale for a stock to bounce back? I’m not to sure. For now, I’ll be sticking with regular stocks and please have a read at the other online options trading available to you.