Spread Betting – Do You Dare?

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Written by Tim Barnes-Clay

Spread betting may sound intimidating, but – as a dad – could it actually be right up your street?

As a dad, making financial decisions is a big part of life, but it’s easy to overlook getting more involved in finance – or how fun it might be. We take a look at the world of spread betting, which could be something you’d actually really enjoy!

How To Make A Considerable Profit From The Dow

So the first thing to understand is The Dow Jones Industrial Average (often called the DJIA or simply the Dow). It’s one of the oldest American market indexes in existence, tracking the average of how 30 of the largest publicly-owned companies in the USA, such as Apple, Coca-Cola, Nike and American Express, do in trading over a single session. Many investors trade in vehicles such as securities that aim to shadow the Dow’s movements.

Since the Dow can be affected by a huge range of factors from corporate financial reports and economic instability to war or global food insecurity, it is a notoriously volatile and unpredictable index that understandably makes a lot of investment advisors wary. However, dads are used to the unpredicatable – who expected that sudden projectile vomit at 4am?! – and it is possible to profit – and substantially – from the Dow, as IG’s spread betting explanation shows. All you need is a little bit of knowledge and some good-timing!

Strength in Diversity

While the various components that make up the Dow regularly change, for the most part they are multinational entities. That means that even if the U.S. economy takes a tumble, their share prices don’t automatically follow, as they could be propped up by growth or stability in – for example – China. Also, the areas of operations for companies range from telecommunications to oil and gas to retail and even to pharmaceuticals, it is this diversity that gives the Dow strength and investors more of a chance.

However, although it’s very unlikely that one of these companies will go out of business in a hurry, that doesn’t necessarily mean that there aren’t large gains or falls in their stock prices over short periods. It can mean the opposite in fact, which is why spread betting has such appeal for everyone from seasoned investors to enthusiastic amateurs!

So dads, ready to get started?

Why spread-bet the Dow

Spread betting is – in layman’s terms – making an educated guess as to whether a particular asset is going to go up or down. That asset could be anything from an individual stock, to an entire index such as the Dow. You never actually need to own the asset. You’re just betting on the direction, and the extent, of the movement. If you go long, and the Dow grows considerably over a set period, then your profit will grow exponentially with it. If it falls though, your losses mount. It’s important to remember, because even the Pros sometimes forget, that just as you can make whacking profits from the Dow, you can also make a big loss in a short period.

The spread is the difference between two prices, the Offer price and the Bid price. Once you get outside the margin set by the spread betting provider you’re using, you can make some money. Let’s assume you think the Dow is going to go up. You would buy at the Offer price which might be £5532. Now, if it goes up beyond that number, you start making a profit. If on the other hand you think the Dow will fall, you would sell at the Bid price.

So, say that you have a £10 per point bet that the Dow will go up, and it does so by 50 points, your profit is going to be £10 x 50 points, or £500. If you bet £1000, you have just made £50,000, possibly in the space of a few seconds. Seeing where the excitement lies, dads?

Spread bettors like the Dow because it is liquid enough to be traded 24 hours a day (you can open or close a position even if the market is not trading). It is also relatively easy to understand even for a newcomer and it is simply quite fun predicting, and watching, how it is shaped on a real-time basis by different types of world event. The other important reason, of course, is that spread-betting profits are tax-free.

Three important tips to remember

If you’re thinking of having a go at spread betting the Dow, here are three important points to keep in mind…

1. Since the Dow is comprised of only 30 stocks, a substantial movement in just one or two of them can skew the average. The stocks which are most highly-priced (such as Goldman Sachs) are the ones which can have the most effect.

2. It’s better not to start trading too early in the day, as the Dow usually opens slowly, so you may not be getting the full picture straightaway. So, even if you’ve been up for hours winding a grizzly baby, wait awhile – give it time.

3. Be cautious when trading around any predictable major event such as a Dow component company making a scheduled announcement, or a presidential address, as things can get a little heated for a while.

Disclaimer: The information given within this article is given only as general guidance. Although we have taken care to ensure the given information is accurate at the time of writing, we accept no liability in this respect. Whilst we do our upmost to provide sound advice, investing your money could result in your investment rising or falling; and we cannot be held responsible for any losses you may incur. We do provide links to third party websites but we will not be held responsible for any content published on these sites.