Guide to spread betting shares.
The ease of spread betting shares is perhaps the biggest attraction of financial spread betting. While you can trade on a wide variety of markets ranging from forex and commodities to bonds and options, for most traders, the easiest and most straight-forward financial instrument is shares. This is because shares are relatively easy to understand and most people have a reasonable idea about what you are talking about when you mention the word ‘shares’.
Spread betting shares basics: what is a share?
At its core, a share is a claim on the assets of a company (after all liabilities are paid off). Put another way, a share is a unit of ownership of a company. This means that when you buy a share, you really are buying a small part of the company.
As an example, take Tesco, the UK retail company. If you own a share of Tesco, it means that you are a part owner of the company. If the company were shut down today and all its liabilities were paid off, whatever assets are left would be sold and the proceeds would be distributed to all shareholders in proportion to the amount of shares that they hold.
Spread betting shares basics: how are share prices determined?
Sticking to our Tesco example from above, how would the market figure out the price of each share? Well, the company’s equity value is worth the sum of all its productive assets. Now, imagine that the total equity capital value if £100 billion and the company has issued 50 billion shares in total.
Mathematically, each share is simply a divided-up unit of the total equity value of the company. Given the hypothetical numbers above, this means that each share should be priced at £2 each. This will be quoted in pennies: i.e. 200p. Obviously, this price will fluctuate from time to time.
While shares can go up and down for various reasons, the real underlying driver is that new information has caused investors to reassess their valuation of the assets of the company or their expectations of the company’s future profitability.
Spread betting shares basics: why bother owning shares?
While there are various features of shares, for the purposes of our discussion here, the crucial feature of share ownership is that shareholders are entitled to a steady stream of their share in profits of the company. This is called dividends. For long term shareholders and investors, the accumulation of dividends forms a substantial part of the total returns earned from owning shares.
Spread betting shares basics: what does it mean to spread bet on shares?
I hope that all of the introduction above has set the scene for this section of the article and also formed a good foundation for all of the other articles provided below. Now for the critical bit.
When you spread bet on shares, you are not actually buying the physical shares themselves . All you are doing is simply betting on the movement in the share price. This distinction is important. It is why many people consider spread betting to be simply gambling. Importantly, this fact means that:
- you are not a part owner of the company whose shares you spreadbet on;
- your name does not appear on the company’s register of shareholders;
- you do not get to go to shareholders’ meetings;
- no matter how big your share spread betting account is, you do not have any say in the running of the business that large shareholders will be expected to;
- you do not get any dividends;
- basically, as far as the company is concerned, you do not exist!li>
Spread betting shares: going beyond the basics
Now, we are done with the basics, check out further articles that explore other issues that you need to know to get a complete understanding of spread betting shares.
- practical examples of shares spreadbetting;
- advantages of spread betting on shares;
- risks of spread betting on shares;
- strategies for spread betting shares;
- spread betting on equity sectors;
- And much, much more...