Financial Spread Betting News Information Tips

Sue Johnson asked:




Financial spread betting has become phenomenally popular in places like the UK and Australia. And for good reason! Spreadbetting has a number of outstanding features when compared with conventional stock trading. First, let’s explore the concept of spread betting in some detail.

In its purest sense, financial spreadbetting is simply a form of derivative trading, using a derivative instrument that mimics the price variations of an underlying financial instrument, such as stocks and shares, currency pairs, stock market indices, and government bonds.

You can think of a stock spreadbet as a derivative on a particular individual stock. Like standard derivative instruments, the value of the spreadbet is based on the value of the specific instrument that it tracks. The price of the bet is basically determined by the price of the underlying market that the bet is based on.

As aforementioned, spreadbetting has a number of distinct advantages over conventional stock trading.

Firstly, in the UK, share trading is subject to stamp duty which is 0.5% of the total transaction value. Spread betting allows a trader to avoid this cost. In this way, the trader is able to add this saved cost straight to the bottom-line.

Secondly, spread bets enable the ease of trading in both directions: buying to go long or selling to go short.

So, unlike conventional share dealing where the requirements for short selling are particularly cumbersome, with spread betting, one is able to sell an index, stock, commodity or currency short in much the same way that one is able to go long. A short seller simply reverses the order of trading transactions, selling first and then buying back at a lower price.

Minnie

David Parkinson asked:




Spread betting is a great way of betting,particularly for sports fans and bettors – no matter how unequal a sporting contest is you can still enjoy a bet – with the opportunity betting from the first minute right through to the very end.Not only can you bet right through any sporting event you can change your mind,and adjust your bets at any time !.

The best way to explain the principle is firstly to use whole number examples(many punters are baffled when they see fractions of goals or similar when first looking at spread betting – how can there be 2.3 goals?(we will explain later).

Lets choose cricket,or any sport where runs are made.The spread betting companies may decide that a batsman should make about 30 runs.They would therefore offer a spread of say 29 – 31.If you think that batsman would score more than that you would BUY,if you did not rate the batsman and thought he would score less you would SELL.(You would keep your stakes low in this market due to volatility.)

IN THIS EXAMPLE THE BATSMAN SCORES 51

If you BUY for $1 – you will win $20 (you bought at 31,result was 51 – the batsman scored 20 more runs than buy offer)

if you SELL for $1 – you will lose $22(you sold at 29,result was 51 – the batsman scored 22 runs more than sell offer)

The beauty of spread betting is the odds change all the time,so you can close a bet at any time and take your profit,or cut your losses,or alternatively sit back and watch your profits grow(or losses)right through till the end.

Now to look at fractions in spread betting – this can be,and can remain baffling to many players- lets look at a soccer match – TOTAL GOALS.- that is the number of goals in a football match.

The spread betting firms are offering total goals spread of 3.5 – 3.8 goals.Obviously you can not have 3.5 goals.What the odds imply is the estimate is between 3 and 4 goals,with a slight prefernce for 4 goals(the spread is closer to 4 than 3).Your stakes in this market will be higher as there is less volatility.

IN THIS EXAMPLE THE SCORE IS 2 – 0 – TOTAL GOALS = 2

If you BUY for $100 you will LOSE $180 (you bought at 3.8,result was 2 – the total goals were 1.8 less buy offer- $100 times 1.8 = $180)

if you SELL for $100 you will WIN $150(you sold at3.5,result was 2 – the total goals were 1.5 less than sell offer – $100 times 1.5 = $150.

The spread betting firms make their profits from the gaps between the buy and sell figures – if they get it spot on,they get a small profit from BOTH the buyers and seller.

Something to bear in mind when spread betting – human nature means most players have an inclination to BUY – they do that because there is no upper limit for profits,unlike selling,when you know your maximum win.Buyers are always hoping for that freak high scoring game for that elusive big hit.

Of course the spread betting companies know this and always pitch there spreads a little higher than they want them to be(they cannot go too high as the big hitters would step in and sell aggresively),so always approach a market with a view to SELL ,and only consider buying after selling has been discounted after careful thought.

As alway there is a particular warning for punters before they start spread betting – be very careful.It is an extremely volatile form of betting,and you should always be aware of your liabilities at all times,also play one market at a time and closing before opening another.

However spread betting is great fun with ingenious betting opportunities on offer – with such a vast range of bets try to find a niche where you can become experienced and knowledgable.with an edge over the market makers who have to cover thousands of different markets.



Tim

Dennis Moore Hopkins asked:




It has become widely known that the financial spread betting is classified as one of the speculative activities, deviating not too far from gambling as it is also free from tax. This betting is also very beneficial when it comes to commodities, trading of stocks, foreign currencies and indices. Perhaps the biggest advantage is there is no dealing cost involved as commissions will be withdrawn by bookmaker via the spread that generate large hitting.

Besides, spread betting provides the benefits of being instantaneous and flexible. Traders are subjected to an extensive flexibility in relation to the positions they intend to take as they are not, in any way, connected to the financial instruments. Dissimilar from open trades that require you to make full investment, you can acquire the specific position for the portion of the bet, without taking into consideration other oscillations of the market.

If there happens to be an archetype change in the position of the costs you took, you will be on the advantageous side. However, if the otherwise occurs, meaning the position is taking a bounce then you would be at the losing edge. Nevertheless, if you are dealing with the financial spread betting, you will have immediate control over the position hence being able to make price shifting the moment you wish to, either markets from the Far East, Europe or UK.

No doubt it is a prudent act that you gain comprehensive understanding of the possible risks and potential advantages of the betting you employ in. You should be well aware that the spread betting is a profound speculative activity involving money. In fact, many professionals have preached that it is an alternative investment platform where the deposit you need is just a meager percentage compared to the total amount of the fiscal position. But certainly, a trader should recognize very well the insinuation of the position you intend to take.

Sue

Daniel Jones asked:




With a ban on shorting most financial stocks are there any buying opportunities? Should investors be buying banking shares and spread betting on banking stocks to increase in value?

Two ways of looking at banking share fundamentals are from a price to earnings (P/E) and price to book (P/B) ratio perspective.

For the sake of brevity this analysis does not observe other fundamental data such as cost to income, advances to deposits and liquidity ratios and does not consider holdings of mortgage backed securities.

The P/E multiple compares a bank’s share price with its latest annual earnings per share. A high ratio may mean that a company is overvalued or could reflect investors’ willingness to pay a premium on every unit of earnings, whereas a low P/E may indicate that a company is relatively undervalued. However, a low P/E does not necessarily mean that a stock is a good buying opportunity; it may in some circumstances suggest that a company is close to bankruptcy. In the case for banks, low P/E’s reflect the reduced earnings prospects originating from further writedowns and credits losses.

The P/B multiple compares a company’s share price with its book value of equity, also referred to as ‘shareholders funds’ (total assets less total liabilities). A high P/B ratio may mean that a company is overvalued or that investors are willing to pay a premium over a company’s ‘accounting book value’. Unlike the P/E (which reflects a company’s ability to generate profits), the P/B multiple reflects a company’s ability to grow its net asset base and generate higher returns on equity.

A P/B ratio below 1 indicates that the market believes that a company is not worth the value of its net assets (as is the case with most banks). Banks are predominantly trading at low P/B multiples because investors are concerned with the quality of their loan books. The current sub-prime crisis and slowdown in the real estate market have exposed banks to rising bad debts. Banks also hold structured securities, which are extremely complex to value (hence they are classed as off-balance sheet items) and carry an element of leverage. Because of the leverage, small adverse movements (depending on exposure levels) could result in huge chunks of a bank’s book value being eroded and could even cause collapse. Investors are aware of these potential dangers and this is the reason why most banks are trading at significant discounts to their book value.

Banks are currently struggling due to turbulent economic conditions, but how does their current value compare to that of the previous downturn six years ago? Should we be buying into the sector?

Anthony Grech, Analyst, IG Index, said in his 2008 FTSE Banking Report that:

“Looking at the lowest P/E and P/B ratios of the previous banking sector downturn which occurred between 2000-2002…most of the FTSE 100 listed banks are already trading at lower P/E and P/B multiples.

“The fact that most of the banks in my report are trading below comparable 2000-2002 P/E and P/B multiples shows an absence of fundamental support levels.

“Therefore, an absence of a fundamental support and the likelihood of increased systematic and unsystematic risks occurring as a result of a more pronounced downturn in the UK real estate market, leads me to believe that the sector has not reached a bottom yet.”

The banking sector…safe as houses?

Spread betting carries a high level of risk to your funds. You can lose more than you initially invest. It may not suit all investors. Only speculate with funds that you can afford to lose. Ensure you understand the risks and seek independent financial advice if and when necessary.



Yolanda

John Helios asked:




Financial Spread betting is best explained by using an example. Financial spread betting appears at first to be a complicated business at first but with a little bit of practice it soon becomes easy to have enough knowledge to play the market and make profits.

Here is a short example of financial spread betting:-

1. Happy Corp is trading at 1.79/1.80 and you think the price is going to rise in value.

2. You decide to place a ‘buy’ bet so you buy Happy Corp at 1.80.

3. Being new to Spread Betting, you decide to trade the minimum amount of ?1 per point.

4. You place a buy bet on with you bookmaker for ?1 per point on ABC Corp shares at 1.80.

5. You now have the equivalent of 100 Shares with a value of ?180.

6. Your margin requirement with most bookmakers for Happy Corp is 5% therefore ? will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this ?9 initial margin.

7. Four days later you see that Happy Corp has risen to 2.05/2.06.

8. Therefore you choose to sell at 2.05 and realise your profit.

9.You bought at 1.80 and sold at 2.05 which means Happy Corp rose by 25 points per share 25 x ?1 = ?25.

10. You held the position for four days which means you incurred four nights financing charge. This is how you calculate the financing charge;

11. ?180 (value of the position) x LIBOR + 2.5% (which in this instance = 8%) /365 (number of days in the year) x 4 (number of days position is held) = ?0.18.

12. The financing is deducted from the total revenue, realising a profit of ?24.82.

This example shows that financial spread betting can be easily explained. The best way to get into spread betting is to read about it first and then practice with a play account before going “live” with real money.

It can be over time real rewarding and profitable business. Please note though you can also lose money so make sure you agree your stop losses first before any trade.

Terri

Nigel Howell asked:




I am going to be honest right at the beginning of this article. I want to try and put you off financial spread betting. That is correct, I want you to forget about it. I bet you haven’t read that before.

Why am I wasting my time writing trying to persuade you not to take up financial spread betting? Well all I read is how good it is. I want you to get a really balanced picture, not just ‘investments can go down as well as up’ line you read at the end of other articles. If you still want to do it at the end of this then great.

Now the best place to get your attention is talking about money and you are likely to lose it in the first year. How good are you at coping when you lose? Can you take it on the chin and move onto the next trade? The successful traders do that. Do you have the discipline to bet small so you can make it through the first year in tact ready for another one?

Not many traders survive the first year so if you have then a very well done. It is an achievement that you should be proud about. Now the real work begins, now you want to make some money. This is where it gets really hard. The big profits in financial spread betting usually only come to a small number of traders.

Do you have a personal life? If you want to keep it then you should stay away from financial spread betting. The markets are open 24 hours a day and the successful traders are their watching. They do it for the love of it. Do you have the passion to put the hours in?

If you are still reading this then you are obviously serious about it. That is good because you need to be committed to your next task. There are so many financial spread betting companies out there, now you have to select one!

Debbie

S Dawkins asked:




Financial spread betting can be a way of gambling on the stock market without having to own stocks and shares themselves; as such one of the chief advantages that it has over trading is that it can be done any time of the day, whether the markets are open or not. On top of this, spread betting is tax free and often allows you to leverage a great deal more money than you actually put down in the first instance. This works both through the use of margined trading and through the spread itself – let me explain.

Spread betting involves betting on whether you think a stock will rise or fall in value in a given period of time. If you think a share is under priced for instance, you are able to ‘buy’ at a certain number of pounds per point (with shares, a point is equivalent to a penny). So, if you buy at £20 per point and the share goes up by 2p then you just made £40. If it falls by 2p then you just lost £40. It’s fairly simple, but the money can spiral out of control pretty quickly.

As a result, spread betting always involves a certain amount of margined trading. Your margin within financial terms, is in part a deposit that you make in order to cover your potential losses on a trade. This is so that if you place a bet at £20 per point, and the stock falls by ten points, there’s a buffer to ensure that the company is repaid the money that you owe them. With financial spread betting you are usually only required to place 10% of the value of your trade down as a margin.

Usually there will also be a facility called a “stop loss” which stops the bet after you have lost a certain amount of money and a ‘stop win’ which does the same after you have made a certain amount of money.

Overall, financial spread betting is a very risky, short-term investment strategy, the main benefit of which being that it is tax free. The main drawback is that you can lose far more than you bet, and that you will need to very carefully manage your position in the market in order to ensure that you do not lose any money. Although risky, one can do well if they study the numerous strategies and master their own techniques.

Ann

Peter Marsden asked:




Financial Spread Betting is an alternative way to speculate on various financial markets. Many brokers offer bets on a very wide range of instruments including spot forex, oil, gas, tracker funds, stocks and many more. Some brokers also offer bets on Futures and Options contracts too.

Unlike conventional trading, the speculator usually has to decide on the amount they wish to bet. The bet size is the amount wagered per point movement. For example if the Dow Jones was priced at 13,000 points and one was to place a long bet at ?1 per point, a move to 13,100 points would make the bet worth +?100. Like mainstream markets, you can set take profit prices and use stop losses.

One advantage of many spread bets is the margin requirements are often very low. One broker only charges a 200 point margin requirement for a GBP/USD bet. However, it is important to be aware that trading on margin incurs a high level of risk and losses in excess of your initial deposit can occur if the market moves against your position. You will be liable for these losses.

On the down side, the buy/sell rate spread is often higher with spread betting than conventional trading as the market is much thinner.

Spread betting is very common in the UK, one reason for this under British jurisdiction spread betting is classed as gambling and therefore does not incur any tax. It is growing in popular in many other countries like Singapore.

Unfortunately, it is currently illegal in the United States.

Carolyn

Shaun Parker asked:




Spread betting is used mostly either in sports or in the stock market, and while it is a complicated method of gambling at the best of times, the simpler of the two is sports spread betting. The reason people deal with spread bets on sports games and events is mostly that traditional bets like this team loses and that team wins can be boring and often fairly obvious given team rankings.

What do you do when a major league team is pitted against a low ranking wildcard team? The obvious choice is that the former will win, but if everybody bets that way then the fun is gone and the profits are pretty much sunk for all the winners. To alleviate the tedium of such situations, the spread bet has taken over bookmaker’s lounges.

What is a spread bet?

In simple terms spread betting is focused on the difference in points between the winning and the losing team in any sport. If you bet that Team A wins over Team B, you are actually taking the odds from the bookmaker and stating that the first team will win by a certain number of points. This difference in point totals is the ‘spread’, and the closer you are to the exact point spread the more money you will win. What determines the spread bet are the odds, given by your bookmaker. The bookmaker decides what the spread will be and you must work within those limits to determine your own bet.

If the bookmaker gives the spread as 4, and you bet on the underdog, you are basically betting that your team will have a point total that, when added to 4, is more that the other team. With this method, it doesn’t matter if the team you bet on doesn’t actually win, because the spread is always included in their score. The reverse is true if you bet on the favoured team. If you place your bet on the team that was given the bets odds of winning, you will only win if their score minus the spread (4) is still more than the other team. This is called either taking or giving the spread, respectively.

Another part of sports spread betting is the ability to bet on specifics – you can secure your point spread as being the final score, or the score after a particular inning, quarter or half of the game. Some bookmakers will let you include amendments to the bet like a certain player will go out early or the losing team will go on to win at national level.

The point of the spread bet is just to add some intrigue to the game when a simple win/lose/draw bet is too boring to even consider. Apart from this, you also stand to lose and gain a lot more money than you can with traditional bets. So beware! It’s more exciting, but you’d better have the money to back it up!



Juanita