How to spread bet
Financial spread betting is becoming a viable alternative to real financial trading and one of its most appealing benefits is that you can start trading with relatively little capital.
Where to start
ETX Capital is recognised as one of the best global providers, having received a number of acclaimed industry awards over the past few years.
All you have to do is select your trading platform, apply for an account with our easy application process – and you’re all set to get trading. Choose from thousands of spread betting markets, including everything from currencies to commodities and from indices to interest rates and shares.
How does it work?
The best way to learn how to spread bet is by walking through an example trade. Now, let us assume that you want to trade Vodafone shares, and ETX Capital’s current market values them at £100 each. You will see two prices on your platform, the buying and selling price, which are referred to as the ‘bid’ and ‘ask’ price, respectively. If you think that Vodafone shares will go up in value, you would ‘buy’ the shares at the ‘ask’ price. Conversely, if you think the value of the shares will decrease in the near future, you would ‘sell’ the shares at the ‘bid’ price. This is one of the unique features of spread betting; it allows you to take a short positions on markets you traditionally wouldn’t be able to with normal share trading.
In this example, let us assume that the ‘bid’ price for Vodafone is £99.50 and the ‘ask’ price is £100.50. You believe that the value of Vodafone shares will go up in the near future and so want to buy 100 shares. With traditional equity trading, you would have to pay £100.50 x 100 = £10,050 for 100 shares, plus a hefty commission on top.
However, with spread betting you only need a small percentage of this amount; usually between 5% and 30%, to carry out the trade. Let’s assume the rate you have to pay is 10%, which means you can carry out the same trade with the same economic effect, while only having to make an initial £1,005 margin deposit, instead of paying £10,050.
The benefit of spread betting on leverage is that it allows you the same access to the markets for a significantly reduced initial outlay. If you are right about the direction of the price movement you will still make the same profit, just as if you actually paid £10,050 for the shares. It must be remembered, however, that if the market were to move against you, your potential losses are exposed to the same level of risk as well.
Carrying on the example, three days later Vodafone shares are now valued at £105. If you decided to close your position at this level, your profit would be £4.50 per share. Therefore, your 100 share trade would result in a profit of £450. As mentioned earlier, the market can also move against you to the same degree, meaning that your losses can exceed your initial deposit. Fortunately, ETX Capital provides an extensive trading education program and also provides risk management tools on its trading platforms, such as limit orders and stop losses, to help you close your positions at a pre-determined level should the market move against you.
Effective risk management can help you take control of your trading and at ETX Capital we are committed in helping educate you to become the best trader you can be. At ETX Capital we provide free third party education for all our traders, because we understand the importance of understanding trading and learning how to read the markets.
What will it cost?
The fee for this type of trading is the ‘spread’, which is the difference between the buying and selling price of the spread bet. At ETX Capital we pride ourselves in offering some of the lowest spreads in market. We offer both fixed and variable spreads depending on which platform you are trading on, while our UK residents can benefit from tax-free trading. Tax laws are subject to change & depend on individual circumstances.
You can protect yourself against losses with a stop loss order by simply setting the maximum amount you are prepared to lose on the trade. At that point the system will terminate your trade please see our supportal for more information on stop losses.