Financial Spread Betting (page 7 of 9)

Spread Betting Stop Losses

Spread betting can be extremely risky. Many bets, particularly in financial spread betting, could leave you with potentially limitless losses. For example, you could place a down bet on a company's share price only to watch the price rocket on an amazing announcement. In that case your losses could be phenomenal if you don't take steps to control your risk.

There are various ways that you can limit your potential loss, while not limiting your potential profit. One way is to set a stop loss with your bookmaker. For instance, if you were placed a £10 per point down-bet on a company's share price when the spread offered was 300-305, you may want to tell your bookmaker to apply a stop loss if the price rises to £3.30. That way you would only lose £300 (330 minus 300 times £10) before being 'stopped' out of your bet.

This is usually offered for free by the bookmakers, BUT it is not foolproof. For instance, if the price was at £3 when you placed a down-bet and the company then made an announcement that immediately sent the price up to £5, your stop-loss would have been breached but the book maker may not have had time to close your position. So even if you do ask for a stop loss to be applied you cannot be certain that it will if there is a sudden jump in the spread.

An alternative is to ask for a Guaranteed Stop-Loss. This will usually cost you extra, normally by increasing the spread slightly, but the bookmaker is then guaranteeing your stop loss at a specific price that will be honoured even if there is a sudden market movement.

Bookmakers offer these stop losses for financial market spread betting, but do not usually offer them for other types of spread betting, such as for sporting events. This is because the risk is lower in these spread bets as, for instance, there is only a finite number of goals likely to be scored in a football match. On financial markets, however, risks can be far higher and so stop losses are offered to help you control them.

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