Spread Trading for the private investor is in principle a simple affair.

Essentially, all you have to do is predict where a particular stock, security, currency or market index is headed.  If you’re right, you win; but if you are wrong, you lose.

When buying and selling the underlying shares, you are quoted two prices in your spread trading account, for example, when looking to trade Anglo American you could be quoted:

139c (This is the amount per share you receive if you sell)

145c (This is the amount per share you pay if you buy)

The difference in the above Buy and Sell quote is the spread. The spread is where most companies make their money off the investor (hence no need for the transaction fees charged by normal brokers).

Your objective is to correctly predict which way the price will move, so that the price you receive when selling is HIGHER than the price you pay when buying – the difference between the two prices is used to calculate your profit or loss.

The difference between normal share investing and spread trading is that instead of buying a quantity of shares you simply decide how much money you would like to bet per point.

You might decide that Anglo American is due to rise and choose to buy at R10 per point.

This means that when you close your bet you would receive £10 for every point that the Anglo American price rises above the price you paid; similarly you would pay £10 for every point that the price falls below.

The Scenarios:

• Price goes up 10p to 150c

Opening purchase value 140c
Closing sale value 150c
Points moved 10 points
Profit per point R10
Profit R100

• Price goes down 10p to 130c

Opening purchase value 140c
Closing sale value 130c
Points moved 10 points
Loss per point R10
Loss R100