How to Spread Bet
How to Spread Bet
Hi, my name is Andrew Edwards and I’m CEO of ETX Capital; today I’m going to talk to you about spread betting.
Spread Betting: A Definition
So what is a spread bet? A spread bet is a means of trading the movement of a financial market without actually buying or selling it. Unlike traditional share trading where, for example, if you thought Facebook shares were cheap, you would buy them, pay for them and sell them at a higher price, with a spread bet you’re betting on the movement of Facebook’s share price and putting up a small marginal deposit to place that bet.
Leverage and Stop Losses
Because you’re only putting up a small fraction of the overall bet size, you’re getting leverage. The advantage of leverage is that you can make multiples of your original deposit, but equally you can lose multiples of that deposit, and therefore it is very important that you use a stop-loss. A stop-loss is a predetermined level at which point your bet will be closed out if it goes against you. Alternatively you can use the ETX Trader platform, where your downside is limited to the amount you have deposited on that account. It’s not only shares that you can spread bet on; at ETX Capital you can bet on over 6,000 Equities, Indices, Currencies, Commodities, Bonds and Interest Rates from all over the world.
How to Place a Spread Bet
So how do you place a spread bet? Well firstly you choose your contract; in this example we will use Facebook shares. Facebook was trading at 7450/7460; that is the bid/offer spread and the commission that ETX makes from every trade. The next thing you decide is whether to go long or short, or in other words, whether you want to bet that Facebook shares are going to go up or down. You then need to decide how much you want to bet; how many Pounds per point you want to bet on Facebook shares moving. If, for example, you were to buy £1 a point of Facebook shares at 7460, you would be taking a £7,460 position on Facebook. And finally, you place your bet.
Education Opportunities with ETX
It is very important that you learn and understand how to trade the markets, and ETX Capital offer a wide range of webinars and seminars, from basic training to advanced technical analysis. So go to our Education Centre and register for one of our upcoming Webinars or Seminars.
I hope this has been helpful and on behalf of ETX Capital I wish you all the very best of luck with your trading.
Regardless of the instrument being traded the choices will be the same; traders can choose to buy if they believe that the market will climb, or sell if they think that the market will drop. The greater the subsequent movement of that market then the larger the profit or loss; it all depends on which way the market moves.
ETX offers thousands of assets to choose from, including indices, forex currency pairs, equities, commodities and bonds.
Spread betting explained
One of the differences between spread betting and regular trading is that when it comes to spread betting traders are not buying the actual product in question. Instead, they are trading based on the underlying movement of that particular market, with their original trading parameters depending on the size of the spread.
For example, let’s say I decide to trade Microsoft. Microsoft stock is currently trading at a bid/ask price of 4528.1/4536.9.
This means that if I decide to sell, or ‘short’ Microsoft stock, the level at which I will be shorting at will be 4528.1. If I instead decide to buy or ‘go long on’ Microsoft stock, the level at which I will be going long will be 4536.9. However, remember that with spread betting the original trade is not based on the actual price of the shares, but is rather based on the spread itself, which is the difference between the quoted buy and sell prices. In our example, the difference between 4528.1 and 4536.9 is 8.8; therefore 8.8 is the size of the spread.
I then have to decide how much I want to trade per point. If, for example, I decide to trade at £1 per point, buying at that 4536.9 level, then I will start off with a deficit of £8.80. I will then need the sell price for the stock, which is currently at 4528.1, to rise beyond 8.8 points to a level of 4537 or above in order to make a profit.
Let’s say that the market subsequently rose and the sell price for Microsoft stock is now 4541.7. If I decide to sell at this level, I will make a profit of £4.80, since the level I sold at, having moved upwards by 13.6 points, is now 4.8 points above the level at which I bought. If, however, Microsoft’s stock price falls and the sell price is now 4523.3, were I to exit the trade at this point I would lose my original £8.80 plus an extra £4.80, since the sell price is now 13.6 points below the price I purchased at.