Spread betting is a process, described both as investing and gambling, in which people make predictions on which way a particular stock or index will move. It's also possible to spread-bet on a sporting event, gambling on a score rather than an outcome. Unlike a traditional wager, the winnings and losses are not fixed and can vary immensely. Spread betting strategies can vary immensely in complexity and often depend on the investors intentions. These intentions can include minimizing risk, hedging other types of investment, and making multiple small gains, rather than playing a "long game."
One of the simplest and common spread betting strategies is scalping. This involves closing a bet as soon as it shows a profit, even a small one. This strategy doesn't always offer a large return, as the investor may miss out on a large movement in a stock, but does minimize the risk of the profitable position being reversed.
Another strategy, which derives from traditional sports betting, is to look for break-out stocks: those that suddenly move up or down beyond previous fluctuations. The most common spread betting strategies for breakouts involve looking for a stock that has slightly exceeded its previous maximum price for two or more days. This is seen as a sign that it is about to overcome the ups-and-downs caused by the market's automatic correction and rise up to its supposed true price.
A contrasting strategy aims to target reversals. This works on the theory that as a stock approaches its historical high or low limits, it will likely reverse its movement. The logic is that when it approaches the limit, the stock is overpriced or under priced, and thus the market will likely correct it to a more realistic price. That the reversals strategy works on completely the opposite philosophy to the break-out strategy shows that simply sticking to a system without examining individual circumstances may not be effective.
Slightly different spread betting strategies apply to sports-related bets. This is because many such bets apply to a situation that has a finishing point; while a spread bet on a stock price could run indefinitely, a bet on the points scored in a football game has a decisive outcome. This may mean there is less leeway to wait for a bet that is going badly to change course. Another strategy for sports is to sell, rather than buy, a position. This could mean betting that a sports event will have a low score, and usually offers better terms because the human desire for sporting action makes many spread betters biased towards positions based on the score being high!
