Spread betting providers are essentially market makers and they make their money from the bid-offer spread. Their prices are usually very transparent; for instance for shares they simply wrap a spread typically 10bp on shares around the bid/offer of the cash price. This price is based directly on the underlying market at any given split second in time and its every fluctuation.
The prices that a spread betting provider quotes for any particular instrument are independent of their total exposure. Spread betting companies base their spread around the price that is offered on the market. If a market is especially volatile, you may be re-quoted a price but again the price you are quoted is dependent on the market price available.
"Of course, in the real world, markets can and do move sporadically. Therefore, when many traders are going long a certain instrument with a sole spread betting company it will adjust its ask price upwards. This will have the impact of increasing the bid-ask spread if the bid price is kept where it is. However, if the company wants to reduce is exposure it would likely also increase its bid-price to encourage more sellers to come to the market."
This is totally wrong and a popular misconception. It is complete and utter rubbish. If spread betting providers started to move their prices in hours out of kilter with the market then this would create arbitrage opportunities and open up their trading platform for abuse.
But then how do they hedge excess exposure in stocks. Say many investors are going short on Barclays what do they do?
In your Barclays example, if they are holding stock in Barclays, they would sell some to balance their exposure. If they don't have any stock they would sell short to hedge their exposure. So for instance they could simply sell Barclays shares (as CFDs). The direct correlation for shares is x100. £1 bet = 100 shares, £25.50 bet = 2550 shares and so on. Of course they don't hedge positions on a one-to-one basis but they still have to maintain a tight book and they have to do this for all products.
What to Look for in a Spread Betting Broker?
Once you decide to go into spread betting for real, you must also know what to look for in a spread betting broker here. The best financial betting broker is one that can work well with you. If you're just starting out and learning the ropes, this is all the more important. Once you are a beginner in this, you'll most likely make mistakes. These can become very expensive over the course of time and may actually nip your new career in the bud.
However, it's possible to find spread betting brokers which can work with you in the beginning. These are the brokers that allow you to trade at a low price for the first few months and then charge you more for their services once you're more familiar with the trade. This also allows new traders to become more flexible with their bets. After all, losing too much with the initial bets quickly dries up new bettors.
Another way to look for a reputable broker would be to look for one that offers free trading courses. There are tips and tricks to the trade which will be taught plus tactics to profitable trading and a comprehensive training for the trading software. The software itself is the backbone to learning trading. Look for a brokerage who offers software for any buyers, one that can be used by any type of computer with an internet connection.
Once you have the software, it's simple to decide what to bet on. Usually these brokers offer more than one umbrella of available markets. If they are bigger than their competitors then it would be sure that the broker offers a varied placement so you could at least break even.
Finally, check out their help desks. Test out how efficient they really are by calling up their hotline. Time how long it actually takes them to answer your call and more importantly, answer your question. Is the service they offer sufficient for you? Are they as much of a help as they advertise? Once you find the brokerage firm that can fulfill all these requirements, then that's the best cash betting broker for you.