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The Financial Times Guide to Investing, 3rd Edition by Glen Arnold

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10

Spread betting, contracts for difference and warrants

Spread betting

You can bet on the future movements of shares (and other securities) in a similar way to betting on horses. If the share moves the way you said it would, you gain. However, unlike with horses, if it moves against you the loss can be a multiple of the amount you first put down – you lose money for every 1p adverse movement in a share price. So, if you bet that Marks and Spencer’s share price will rise, and you punt £10 for every penny rise, if M&S increases by 30p you win £300. However, if M&S falls 30p you have to hand over £300. This is the basic principle, but the actual operation is slightly more complicated. If you believe that the price is destined to rise you will ...

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