How do spread betting COMPANIES work?

PoleStar

Hi

This may be a silly question. I am well read now having been studying for the last while on spread betting and how it works from MY point of view.

But how do spread betting companies work? How does the trade work from their point of view?

I understand that the spread is their margin for profit but what is their role?
Are they making the trades that I place for real? Or what is the story?

I can imagine that if I make a buy bet, they might make the real tade and the margin is their profit and whether I am right or wrong in my bet, I would cover the loss if the shares lose value.

What happens though with a sell bet? If I correctly make a short trade, how do they make money? What do they do? Is it similar to shorting the real market that they sell and buy back at lower cost?

Or is the whole thing a fancy betting company relying on the fact that me the punter will lose more oftan than win and thus they always win? Or do they actually trade the positions?

Thanks and sorry if I ramble a bit!

dunkamania

The most obvious way is to match one clients buy order with another's sell order and capture the spread.

If you have nobody on the opposite side of a client order, you go into the markets and take a position that corresponds to your client order. ie, your client wants to buy Tesco, so you work out how many shares you need to buy and go do it in the market.

Finally, you can take proprietary positions with your clients trades. Client wants to buy oil, you can take the trade but choose not to hedge it, thereby taking a short position in oil.