Financial Spread Betting News Information Tips

Steve S H asked:




Financial spread betting must be given due consideration by those engaged in the trading of stocks, forex, indices and commodities. One of the main pluses of spread betting is that there’s no dealing costs involved in the transaction. Bookmakers earn from their commissions based on the spread that is quoted.

A good way to illustrate how the transaction works is through an example, as the concept is generally the same in all markets. Let us assume that there are strong indications that current value of FTSE 100 index of about 6230 is too high, and chances are that share prices will decline in the next month or so. Accordingly, you can spread bet a quote which may give you a FTSE 100 price for the 3rd week of the following month of around 6165 to 6175.

Based on this existing spread, you have two options, either you bet that it will fall below this price range and sell the index or you bet that it goes higher than this and buy the index. Either of these options, you are making a bet by staking a sum of money, say £12 per point. If you expect it to fall, you will logically sell the index. Let us assume that on the stated period, the FTSE 100 actually closes at 6015 level, 150 below the Index spread. Based on this result, your total spread or profit will be £12 times 150 or £1,800. The good thing about this instrument is that you don’t have to wait until the stated period to claim your profits, as you can close them anytime as soon as you earn profit.

However, there is a downside in spread betting. The prospect of windfall profits is balanced by an equal prospect of potential losses. Let us assume that you have bought points under the same condition as discussed in the preceding paragraph. Your losses would have been astronomical. This negative hit on your pocket will be equivalent to £12 times 160 or £1,920. You have to remember that when you make an erroneous call, you stand to lose big time. On the other hand, if you make the right call, the profit will likely be astronomical.

It is because of the high risk involved in this kind of transactions that companies involved in spread betting are very strict when it comes to credit. In most cases, they only provide credit to individuals who are capable of absorbing substantial losses in the transaction. Thus, you will have to expect cash transactions from your bookmakers whenever your bets move into negative territory.

So, what are the things that we should consider if we want to give this a shot? You have to remember that, just like with any other trading method, financial spread betting bears upon us the same risk. It is wise that you look for spreadbetting companies that provide a special facility for a demo account that comes with imaginary margins. This will allow you to “test drive” the trading method without the attendant risk of losing large sums of money due to erroneous calls.

Debbie

Ben Catt asked:




Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.

Quite simply, if you think a particular index, share, commodity, currency or sector will rise, you place an UP bet. This also referred to as a Long position or a buy.

On the other hand if you think the particular market will fall you place a DOWN bet (commonly referred to as a Short position or a sell).

The amount of profit you make or money you lose depends on how right or wrong you were and how much you risked per point.

At the time of placing the bet you decide how much you would like to risk per point. This can be as small as ?0.01 or a large amount such as ?1000+.

Most bets work on either a daily, rolling or contract month basis.

A Daily bet is one which is only open during one particular trading day. You could place the trade at 11am and, if you do not close it beforehand, it will be closed at the end of trading (4.30pm in the case of the FTSE 100).

A Rolling bet is one which, unless you state otherwise, rolls through to the next trading day. This costs a little money and your bookmaker should be able to give you more details.

A trade opened for a particular Contract Month will end up to 3 months in the future. There will be a specific date when the contract finishes known as the Expiry Date or Last Trading Day.

For example: if you opened a trade on the FTSE 100 September contract, the expiry date will be in September, usually the third Friday. The trade will expire at the close of trading on that day.

Some bookmakers also run other types of bets such as weekly and also “Year End”.

Day-traders or “scalpers” will tend to use Daily or Rolling bets but as a beginner it may be wiser to trade over a longer time frame.

If you decide to day trade, bear in mind that you must be correct almost immediately to profit. If you select a longer time scale, you have some breathing space for the trade to turn around.

An example of a trade

It is June and the FTSE 100 is trading at around 5000 and you are confident that it will go higher before September. To back your opinion you decide to use a spread bet.

Logging onto your internet account, the bookmaker quotes you 5010-5020 for the FTSE 100 September contract.

This means that you can buy (go long) at 5020 or sell (go short) at 5010.

Spread betting quotes are always displayed as two seperate prices. You buy at the higher price and sell at the lower one. The “spread” itself (in this case 10) is a charge added by the bookmakers. Different companies have different spreads, some larger than others.

As you are backing the market to go higher, you would buy ?1 a point (or however much you like) at 5020.

September arrives and you are close to the expiry date for the contract.

Rather than wait for the last trading day you decide to take your profit as the FTSE 100 is now quoted at 5305-5315.

You close your position by selling ?1 per point at 5305.

As you were correct in thinking the FTSE would rise, you have now won ?285:

(5305 – 5020) x ?1 = ?285 tax free

There is no need to hold your position until expiry, you can close it at any time to take your profit or limit your loss.

If the FTSE was trading at 5500 in July, you could have closed then for more profit. All you have to do is log into your account and place another trade in the opposite direction for the same amount per point to close.

Of course, if the FTSE had gone lower in this example you would’ve lost money but you can use stop losses to limit the loss.

Raul

Stacey Harris asked:




How does financial spread betting work?

Quite simply, when you spread bet you decide which way you think an instrument in the market will move. For instance, you would ‘buy’ if you think, say, the share price of Barclays will go up and ‘sell’ if you think it’s likely to fall. The degree to which you are correct dictates how much you win or lose. So with spread betting you never physically gain or lose any shares, which also means you won’t have to put up the full cost of the share. The only charge is the dealing spread.

What is the ‘spread’?

The spread is simply the difference between the price at which you ‘buy’ and the price at which you ‘sell’ in a particular market. For example, say your spread betting company is offering the FTSE 100 Daily at 4025 / 4027. The spread is two points: if you want to ‘buy’ you do so at 4027 and if you want to ‘sell’ you do so at 4025.

What are the benefits of spread betting?

Apart from paying the spread, you won’t pay any commission, brokerage fees, stamp duty or capital gains tax in the UK.

You decide: to go long or short

Whether you choose to ‘buy’ (go long) or ‘sell’ (go short) – it means that the more a price moves in your favour, the more money you make; the more the price moves against you, the more money you lose.

Leverage

With spread betting you can take a position on a market at a fraction of what you’d normally have to pay. Smaller deposits can result in magnified profits, but equally you may lose more than you initially deposited.

Manage and control your risk

You can take advantage of various devices that will limit your exposure to risk. Use Stops and Limits every time you bet, or pay a Controlled Risk premium to guarantee an absolute limit on any potential losses.

The range and diversity of the financial markets

The financial markets are incredibly exciting, here’s just a taste of them:

- Forex. Will sterling strengthen against the US dollar?
- Shares. How is a company’s share price performing?
- Indices. The FTSE 100, to finish up or down today?
- Commodities. What’s the price of oil right now?
- Interest rates. Are they set to rise, or fall?
- Options. Calls and puts, are you bullish or bearish about the future price of a stock?

Sophisticated online dealing platforms

Spread betting is generally done online, through a dealing platform and directly with the provider, not through an exchange. And it’s important you choose the right one to help you trade effectively and safely. IG Index’s PureDeal platform is considered by many as the market leader and is used by beginners and experienced spread bettors alike, It’s browser based and allows one-click bets. It also includes a fully-integrated suite of professional tools, from live Reuters feeds to professional Charting Tools.

However, spread betting is not suitable for everyone, so before starting make sure you fully understand the risks.

Clifford

Andy Richardson asked:




I’ve held (firstly Unit Trusts and Investment Trusts) various investments over a 20 year period. Nowadays I hold only shares through spread betting, a lot more work but far more rewarding. When I first got a broker (circa 1993) I remember buying ‘this share and that’ usually with information taken from ‘tip sheets’ and newspaper stories. I would religiously read articles and follow prices – I saw individual shares go up and down (but mostly up) over a period of months only to find some five or six months later a massive drop back to square one, sometimes because of trading statements, often for no apparent reason at all.

I became more interested in charting, less in fundamentals and changed tactics. I’m not trying to become a millionaire though it would be nice but as I’m early retired and living in France all this is more of a hobby that makes enough to live on and I haven’t yet taken my private pension nor do I yet receive a state pension.

I now have a ‘trading system’ using software (sorry to those of you who are purists) and it serves me well however for the last few months I’ve limited myself to short-term spread betting trades.

Secondly, why not keep going?

I have no idea on market direction, I know this because my quarterly earnings were far worse than they should be. As the saying goes, ‘if in doubt, get out and stay out’. This is where I am at present, I have no idea on general market direction enough to feel comfortable trading it, this would lead only to irrational behaviour and bad trading decisions.

Many traders I know are short at these levels, including a few friends who I know are running some large short positions, holding up the fundamental economic flag which basically says we have built a house of cards, but this is irrelevant as goes the old saying ‘the markets can stay irrational longer than a trader can stay solvent’!

For the time being I will remain day trading only with no biased direction, of course, because I don’t know which direction so do not have an opinion, just simply trade what I see.
In the meantime, I wish you well and will keep watching.

Bryan