What is the bid-ask spread in spread betting?
A little information about spread betting first
Spread betting is a tax efficient way of investing in the markets*. It is known as a derivative product, with the trader never owning the underlying product. The trade or ‘bet’ is placed with the broker.
You can bet on products moving up or down, gaining or losing value. You can use leverage, allowing you to gain greater exposure to the markets than trading directly.
Unlike fix-odd betting, there is no simple win or lose scenario. Traders do not have to close their trades at any defined time or level and can even add to positions.
However, this can cause greater losses than the intended original stake. It is advisable to get acquainted with all aspects of spread betting before trading on a live account.
Sign up to a demo account, click here.
*In the UK spread betting profits are exempt from capital gains tax. Please be aware that tax treatment depends on your individual circumstances and tax law may be subject to change.
The bid-ask spread
A spread betting broker will offer two prices for every product.
There will be a price where you can buy the asset. This is known as the offer or ‘ask’ price. The second price is where you can sell the asset. This is known as the bid.
It is common to hear traders say, ‘I hit the offer’ or ‘I hit the bid at 0.9552’. The latter meaning that they sold the product at 0.9552.
Why is the size of the bid-ask spread important?
You can look at the bid-ask spread as part of your ‘cost to trade’. They offer varying ‘spreads’ on different products. This is normally dependent on how liquid the underlying product is.
A liquid product like EURUSD will have a tighter spread than a product such as GBPNZD.
Figure 1 Pepperstone spreads
If you want more information on the spreads, commissions, and swaps at Pepperstone, click here.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.