With a traditional fixed odds bet the person taking out the bet knows from that moment exactly how much they can lose - 'their stake money'. So if they bet £5 at the beginning of the football season that Manchester United would win the Premier League at odds of say 5-1 all they can lose is the £5 stake. They also know in this case if Manchester United wins the Premier League, their profit will be: - £5 staked at 5-1 which equals 5 x £5 = £25 less betting tax. (Unless betting tax has already been paid on the stake). Spread betting is altogether a different story. In most cases you will not know how large your profits or losses can be (although losses can be protected by a guaranteed stop loss which enables you, at a certain cost, to guarantee your maximum loss on a trade). The best way to fully understand spread betting is to go through some of the examples given on this site.    Copyright 2000 everythingexplained.com for spreadbettingexplained.com While every care has been taken to ensure accuracy of the content of this site, no responsibility can be taken for any errors or omissions. Viewers are strongly advised to check information published with individual institutions, and to take legal advice, where appropriate, before entering into transactions. All interest rates are correct at the time of going to press. The information here is only for your general information and use and is not intended to address your particular requirements. Specifically, the information does not constitute any form of advice or recommendation by us and is not intended to be relied upon by you in making (or refraining to make) any specific investment or other decisions. Appropriate independent advice should be obtained before making any such decision. Neither we nor any of our site-writers make any warranties expressed or implied, as to the accuracy, adequacy, quality or fitness for any particular purpose of this information for a particular purpose or use and all such warranties are expressly excluded to the fullest extent that such warranties may be excluded by law. You bear all risks from any uses or results of using any of this information. You are responsible for validating the integrity of any information received over the internet.

P1   A spread bet is a bet around a prediction of a future result or price made by a bookmaker or bookrunner. The best way to fully understand how spread betting works is to go through some of the basic examples you will find contained in spreadbettingexplained.com until you feel completely comfortable with the concept. Some spread betting companies actually offer a dummy trading facility which enables you to take "practice bets" and see your actual results without taking a "live" bet and in some cases they even offer prizes for successful punters. We believe this is a very sensible approach, as it is of upmost importance that the risks involved with spread betting are fully understood before trading begins. Remember as quoted in a number of national papers, "spread betting can seriously damage your wealth if events go against you". Now onto the history and basics of spread betting. Spread betting has been around for many years but mostly it was concentrated around the "Square Mile" in the City of London. Many of the bookrunners were individuals working on the old stock exchange floor and the bets tended to be mainly placed on sporting events, particularly cricket and rugby scores. Today the main bookrunners are professional bookrunning firms or bookmakers although there are of course individuals who still make prices. Over the last few years spread betting has become the fastest growth area within the betting industry. Financial spread betting has taken off and the number of products that you can bet on is growing at a rapid pace. The name spread betting evolved from the actual spread (width) between the bid price (the lower price which one sells at) and the offer price (the higher price which one buys at). This spread is also the margin the bookmaker or bookrunner hopes to make their profit from. Understanding this concept is of prime importance when you are spread betting. You also need to understand a couple of points on buying and selling. When you buy something, with a view to selling it at a later date, you buy something that you don't yet own, and you know that you will have to sell it at some point in the future. This is called going 'long'. The reverse is to sell something, with a view to buying it back at a later date. This is called 'shorting' or going 'short'. It is vital to understand this concept of selling something which you don't yet own. Let's look at a simple example of a sporting spread bet made by Mr A on the number of yellow cards (bookings) in a particular football match. The price set by the bookmaker or bookrunner for yellow cards in this match is 4 - 5. This means that if Mr A thinks that there will be more than 5 yellow cards, he should bet by going long at 5, ie he should buy, which he can only do at the higher price (5). But if he thinks that there will be fewer than 4 yellow cars, he should bet by going short at 4, ie he should sell, which he can only do at the lower price (4). Mr A actually believes that there will be more than 5 yellow cards and decides to stake £5. So he goes long £5 at 5. This means that every yellow card in excess of 5 will result in a profit of £5, but every yellow card less than 5 would result in a loss of £5. Remember: The stake money in spread betting is the amount of money risked for point movement. In this example, one yellow card. If Mr A had gone long at 5 and the number of yellow cards was 5, he would neither win nor lose. If Mr A had gone short at 4 and the number of yellow cards was 4, he would neither win nor lose. Consider two possible outcomes to the match:- Example 1 Mr A thinks there will be more than 5 yellow cards so buys £5 at 5. If at the end of the match the number of yellow cards were 7. So the profit or loss is calculated by: Profit   Price is 4 - 5 Mr A goes long £5 at 5 Total No. of yellow cards awarded 7 Less (buying price) 5 Difference +2   The stake price £5, x the difference, +2 =£10 profit   If at the end of the match the number of yellow cards were 3. So the profit or loss is calculated by: Loss   Price is 4 - 5 Mr A goes long £5 at 5 Total No. of yellow cards awarded 3 Less (buying price) 5 Difference -2   The stake price £5, x the difference, -2 =£10 loss   Another key factor to remember with spread betting is that the bet remains "live" to its completion. This means that you can check the price of your bet right up to the result or make up time and take a profit or a loss any time beforehand if you want to. Let's look at another example to show how this works. Example 2 A cricket test match England v. South Africa at Lords. England is about to bat and the quote for England runs in the first innings is 190-200. Say Mr B thinks England are unlikely to score 190 he therefore can sell runs at the lower score (190). He sells £5 (the stake price) at 190 (runs) or goes short £5 at 190. Profit   Price is 190 - 200 Mr B goes short £5 at 190   Total No. of runs scored 165 Less (seling price) 190 Difference +25   The stake price £5, x the difference, +25 =£125 profit   Loss   Price is 190 - 200 Mr B goes short £5 at 190   Total No. of runs scored 230 Less (seling price) 190 Difference -40   The stake price £5, x the difference, -40 =£200 loss   Although in Example 1 we have a result of 165 all out let's see how the "live" price changes. England after 12 overs are 50 runs without loss and the price is now 220-230 for the 1st Innings. This change has reflected the good start by the England Team. Mr B could take his loss by buying back his short (sold) position at 230 (remember he has to buy at the higher price). So if he did this, the result would be: Loss   Price is 220-230 Mr B sold £5 at 190 Later Mr B buys £5 at 230   Difference -40 x £5 =£200 loss   But Mr B decides to keep his bet going and England have a very poor period and lose 5 wickets for only 30 more runs. So the score now is 80 for 5. The live price reflects this and now is down to 150-160. Mr B could now decide to take his profit by buying at 160. Profit   Price is 150-160 Mr B sold £5 at 190 Later Mr B buys £5 at 160   Difference +30 x £5 =£150 profit Remember you can deal in part of your position taking profit or loss on say 50% of any amount if you would like whenever you want. But Mr B keeps to his original position and ends up with a profit of £125. Profit   Mr B sold £5 at 190 Result all out 165 runs   Difference +25 Result +25 x £5 = £125 profit     Financial Spread Betting This offers an alternative to dealing in the traditional way in stock markets, fixed income markets, currency markets and commodity markets. What a financial spread bet does is predict the price of a stated instrument or product at a specified time in the future. There are a huge number of types of financial spread bets and the time period can vary from "day" bets (which cover a certain period in our day, normally the market hours of a particular instrument) to much longer periods. Remember it is important to be clear of the terms and conditions before making any spread bet. Always check and be clear about the expiry date and time of expiry on that date of any spread bet. (These may vary from company to company). Once you decide which instrument you would like to trade in you just need to call or request for on-line systems for a quote. Then you can make your bet. Remember the normal principal still works, if you want to sell something then you sell at the bid price (the lower price) and if you want to buy something you buy at the offered price (the higher price). Never forget this rule, as it is the same for all spread bets. The types of spread bets available are also increasing all the time as the spread betting companies compete for business. Listed here are most of the straightforward types of spread bets with working examples. With some of the new and more complicated types of spread betting we recommend an extra cautious approach. Make sure you are confident with the more straightforward type of spread betting before trying any of these. Remember any misunderstanding could result in large losses so once again we recommend paper trading (practice trading) first.

Setting Up a Spread Betting Account Setting up a spread betting account is a very simple process and in most cases will only take 2 or 3 days. A normal account will expect you to deposit a sum of money (margin) that will cover basically any bets in progress. If your current bets start to go against you, you will be called upon to deposit more money (margin) to cover the potential losses. Credit accounts are available and they are generally offered on an individual basis, the amount of credit given governed by your own particular circumstances. As soon as the account is set up you may begin trading. Copyright 2000 everythingexplained.com for spreadbettingexplained.com

P2   The Main Advantages of Spread Betting 1. At this time the only tax due on spread betting is betting duty and that is currently absorbed by the bookmaker or bookrunner. No Stamp Duty is payable and there are no capital gains tax charges. So today the punter pays no tax. Of course the tax situation may change in which case "spread betting explained" will immediately update the relevant changes. 2. No direct commission or brokerage fees are charged. 3. Spread betting enables people to go short allowing people to protect part or all of their investment portfolios if they want to. This facility is particularly useful for people holding a large number of a single share (they may have options, be a director, owner etc.) and they want to protect their holding or part of it. Also a person's tax position may not allow them to sell the actual shares and a spread bet could protect their position. 4. By enabling short positions spread betting allows you to make money not only in rising markets but also in falling markets. 5. Spread betting allows you to take small bets as well as large and there is no different spread quoted for a smaller size bet. Therefore small positions are not penalised like they can be in cash markets. 6. With spread betting in many cases it is possible to deal when the traditional markets are closed. 7. Spread betting enables you to get very fast quotes by phone or on-line systems and gives instant execution (this is not always the case in the traditional markets particularly for small positions). 8. Relatively low margin requirements normally allow good leverage for larger positions. In most cases only between 7.5% and 10% is required as margin to be deposited with the bookmaker or bookrunner.   Disadvantages of Spread Betting 1. The spread is not normally guaranteed and can change if the market becomes more volatile although in normal market conditions spreads are usually constant. 2. If a person trades before the expiry date they will basically be paying the spread for a second time so adding to the underlying cost of the trade (in a way paying the bookmaker or bookrunner twice for dealing). 3. Spread trading gives no rights to the investor. No voting rights no dividends etc. 4. Spread betting can be extremely volatile and many bets unless protected by a "guaranteed stop" can result in extremely large losses if events go against you. 5. As the only tax applying to spread betting at this time is betting duty (absorbed by the bookmaker or bookrunner) any losses incurred cannot be offset against tax. Copyright 2000 everythingexplained.com for spreadbettingexplained.com

P3   On this page we invite you to send us questions. We cannot guarantee to have answers for you, but we will try to help. Some of the questions asked will be listed here, if we think that the questions and answers are of sufficient general interest. However, we cannot give you individual replies or advice, since we are not authorised to do so in this way. Our answers will be aimed at people that have a problem of a specific type, but without naming either individuals or organisations. Our answers will be those that apply to the best of our knowledge, but questioners should take specific advice before relying on our answers. What we will try to do is to enable you to ask the right questions of advisers and to understand the answers and the implications of those answers. Please fill in this form if you have a question you would like answered, or e-mail us at  questions@spreadbettingexplained.com . To Ask Questions: First Name Surname E-mail Address Questions for this Website   Previous Questions Asked: 1. 2. 3.   Copyright 2000 everythingexplained.com for spreadbettingexplained.com

P4     Whilst browsing the Internet we occasionally come across excellent financial sites on mortgages or related subjects. We will list these for your future reference.           Copyright 2000 everythingexplained.com for spreadbettingexplained.com

P5     Explain everything simply.     We have found that if you can't explain something simply, either you don't understand it or you are trying to hide something. We at everythingexplained.com will try to guide you through the pitfalls in life, which we ourselves may have stumbled into from time to time, so that you do not have to repeat our mistakes. We have many years of consuming, investing and generally experiencing life between us. Our contributors, who we have invited to write certain sites, have specialist knowledge of those areas and also have many years of experience. By using our sites, we hope you will be able to find answers to questions that you wouldn't dream of asking, because you would be afraid of looking stupid or might lay yourself open to being taken advantage of. We also think that the subjects we cover and the questions we are trying to answer beforehand for you are those that it seems to be assumed you will 'pick up' as you go along. These things are not generally taught in schools or colleges and represent a steep learning curve when you finally find that you are caught up in them. If you find something that you think we have not covered, or have not covered well enough - let us know. Send us an e-mail. Our e-mail address is  everythingexplained@everythingexplained.com. Copyright 2000 everythingexplained.com for spreadbettingexplained.com

P6   Spread Betting Jargon Explained   Here is where we give you a simple guide to the meanings of some of the terms used when reading about spread betting. Just click on a term you want to understand - in the Index section choose one of the words underlined in blue - and you will be taken to the right part of this page for that term.   Index top bid call option day bet expiry date fixed odds guaranteed stop loss long long position minimum size premium put option short spread     Definitions  Bid - the price you can sell at (always the lower price). [top] Call Option - the right to buy at an agreed price in the future. [top] Day Bet - a bet that lasts just one day. [top] Expiry Date - day and time the bet expires. [top] Fixed Odds - when making a traditional bet you receive fixed odds i.e. 3-1, 4-1 etc. and your maximum loss is your stake money. [top] Guaranteed Stop-Loss - guarantees a maximum loss by closing your position out at an agreed price if the market trades there regardless of volatility. [top] Long - what you call the position if you buy the market i.e. if you buy £5 gold at 290 you would be long £5 of gold at 290. (With options you can take the same positive view of the market by buying call options or selling put options, in both cases you would be called 'long the market'). [top] Long Position - this means owning the product - eg having purchased puts or calls (which means you may be long or short the market). This is the only side of position we recommend in options because your loss is limited to how much you have paid to buy your position. Do not go short options). [top] Minimum Size - amount of money required to be left with the bookmaker or bookrunner to begin trading. Remember this may go up if bets are going against you and you will have to deposit more funds if this is the case. [top] Premium - is the cost of the option. [top] Put Option - the right to sell at an agreed price in the future. [top] Short - what you call the position if you sell the market i.e. if you sell $5 of gold at 285 you would be short of gold at 285. [top] Spread - difference between the bid and the offered price. [top] Copyright 2000 everythingexplained.com for spreadbettingexplained.com

P7   Individual Share Betting Over the last few months you have seen the price of XYZ Company fall rapidly from £4 per share to £3 and you believe this would be a good price to buy (to go long of the shares) for a number of reasons. You ring your bookmaker or bookrunner and if we take today as being January 1st, ask for the price in the 'March expiry' XYZ share. Remember, check the actual expiry date and time. For this example we will use March 1st at 11am. The quote is 318-321 pence. Here it is important to understand that this price will normally be at a premium (higher) than today's price to reflect any dividends due to the underlying share and the 'time value' of the bet. (Actually the 'time value' represents the possibility of how the share price might change over the period to expiry - called the 'volatility', and also that £1 today is worth more than £1 in e.g. 3-months time because of the interest that could have been earned on deposit in a bank over that period.) In this case the bet has almost 2 full months to run and you feel the price will rise above this level within this time period. So you buy say £5 a point (for every penny XYZ moves) which means you pay the higher (offered price) and go long (buy) at 321. Remember the price of XYZ Company is "live" and at any time during its tradable day you may check the price and trade if you want to. Bookmakers/bookrunners will trade in a particular bet during their published hours. Point to Note As the bet stands you are liable for an unknown amount of losses if the share continues to fall. You may decide that you only wish to lose a certain maximum amount of money so you can protect your bet by taking out a guaranteed stop-loss. For this service the bookmaker or bookrunner will charge you an extra premium (fee) but you have the comfort of knowing your worst-case scenario. If the price falls to your guaranteed stop-level you will be automatically stopped out and your positions squared out. Most types of spread bets can be protected by a guaranteed stop-loss and the size of the premium charged will depend on the length of the contract in time, the underlying cost and volatility of the instrument involved. So back to the example: Mr A buys £5 at 321 with no guaranteed stop-loss. Result 1 In approximately 1 month, February 1st, Mr A reviews his position. Shares of XYZ Company are 335 due to a strong rebound in the market. Mr A decides to take the profit. Profit   Mr A is long at 321 Price of XYZ on Feb 1st 335   Difference +14 Result +14 x £5 stake = £70 profit     Result 2 In approximately 1 month, February 1st, Mr A reviews his position. Shares of XYZ are 290 due to a poor market. Mr A decides to take his loss. Loss   Mr A is long at 321 Price of XYZ on Feb 1st 290   Difference -31 Result -31 x £5 stake = £155 loss     Result 3 Mr A runs the bet until expiry on March 1st. The price of XYZ Company is now 350. Profit   Mr A is long at 321 Price of XYZ on Mar 1st 350   Difference +19 Result +19 x £5 stake = £95 profit      Result 4 Mr A runs the bet until expiry on March 1st. The price of XYZ Company is now 285. Profit   Mr A is long at 321 Price of XYZ on Mar 1st 285   Difference -36 Result -36 x £5 stake = £180 loss