The easiest way to explain how spread betting works is with an example. But equally, the more wrong you are, the more you lose. On down bets, your potential losses are open-ended. However, it is possible to mitigate this risk. This automatically closes out your trading position if losses mount to a pre-set level beyond which you feel uncomfortable.
Bullish investors can use spread betting to gamble on rising markets by opting for an up bet.
The process works in exactly the same way, but in reverse. Many spread betting firms have also branched out into contracts for difference. Most firms will not allow you to deal unless you have at least one year's experience of stock market investment. The choice between spread betting and CFDs depends on your attitude to risk. Spread betting is less risky, as long as you set a stop loss.