Financial spread betting (or spread trading) is a speculation on the movement of prices on the world's stock markets and currency exchanges.

This could be a market like the Dow Jones Industrial Average (DJIA) or the FTSE 100, an exchange rate between 2 currencies such as the Euro and the Swiss Franc, or an individual stock on an exchange such as Microsoft on the Nasdaq or BP on the London Stock Exchange.

With spread betting you are trading on the markets without ever having to take ownership of shares or currencies. You're literally betting on the movement of the price. This means that you don't need to have huge amounts of capital to start spread betting.

So how does spread betting work?

For this we're going to use an example.

Imagine that you think the share price of Apple Inc (creator of the iPod) is going to go up over the coming trading session.

At the time of writing the share price on the Nasdaq was $102.50 but you think that it's likely to go up to over $110.

Based on your thinking you would place a 'buy order' at the current price ($102.50) with your trading company for a specified amount per point.

If your trading platform uses whole dollars as points ($1 = 1 point) then for each point that Apple Inc goes up you will win whatever amount you traded per point.

Imagine that you traded with $10 per point. For each dollar up that Apple Inc moves you're $10 better off. So if the price does reach $110 then you're $85 dollars in profit.

But there's a catch (and it's a pretty big one)

If the price moves in the opposite direction to where you think it will then you will lose by the amount of points it moves times the amount per point you traded.

Thus, if Apple Inc slides to $92.50 then you will have lost 10 points at ten dollars per point amounting to a loss of $100.

So, as you can see, spread betting is an exciting way of trading and making money from the world's financial markets.
But you also need to be aware that it's possible to lose quite a bit of money if you don't trade wisely.