Made to Trade Beginners Guide to Spread Betting

8/2/2019 Made to Trade Beginners Guide to Spread Betting

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Warning: Spread betting risk substantial financial loss, all transactionsare at your own risk. Only speculate on financial spread bets within thelimits you can afford. Spread betting may not be a suitable investmentfor all. Make sure that you understand the risks involved and seekindependent advice to whether spread betting is suitable for you.

Made To Trade: Beginners Guide To SpreadBetting

The Pro's & Con's of Spread BettingToday we are going to ask the question what is the driving force behind the recent rise inspread betting. Say you have 10,000 pounds of savings you want to invest, you will befaced by a multitude of investment opportunities. You might want to put the money into abasic savings product such as cash ISA, or manage a small stock portfolio on your own.You may invest in a fund managed by a fund manager or purchase units in a tracking fundwhich will track the performance of the market.

But there is one thing that all these options cannot provide you! That is the possiblepotential returns that a successful spread better can make. Though the risk factor is muchgreater it can be possible to make consistent returns far greater than any other investmentopportunity.

A type of derivative, spread betting presents the investor with the opportunity to bet on themovements of shares, index's, currency's, commodity's and bonds. It allows you to makereturns on the movement of these financial products without physically owning the share or the bond. Spread betting has allowed increased access to the financial markets, the kind

which was once limited to the financial big players.Created in the 70's by Investment banker Stuart Wheeler, spread betting really only beganto catch on in the late 90's. The continued rise of the internet in Noughties has only fueledthe spread betting boom. With spread betting being one of the fastest growing derivativemarkets.

There are three main reasons for these huge growth of spread betting including the rise of high speed internet, increased market volatility and the potential returns a prudent spreadbetter could in theory make. Spread betting has evolved in order to take in a growing andmore diverse market.

Here we are going evaluate what the Pro's & Con's of spread betting are. This might helpyou get a better picture of whether spread betting is suitable for your financial needs. My


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views are unbiased.

Pro'sThere are considerable advantages to spread betting. The main ones are featured here.Simple spread betting is easier to understand than many other financial instruments,including competitors such as CFD.

Small capital requirements accounts can be opened for less than 100, and trades can bemade from accounts with balances as low as 28.

Small upfront costs you only pay a small amount of the total costs, usually only 10%upfront, this is known as margin trading.

Make money from both bull and bear markets, giving you the possibility to make moneyfrom both rising and falling markets.

Spread bets are tax free, providing you have another source of income.

One account and less paperwork, which makes managing a spread betting account aneasier prospect than other types, of financial products.

Extended trading hours, the huge range off markets and options means you can trade 24/7365 Days a year.

The possibility of unlimited profits and limited losses.

ConsCosts when you close the trade, all spread bets have expiry dates unlike traditional sharetrades, with conventional share trading you only confirm your loss once the shares havebeen sold.

No dividends or interest, you don't get returns from investments in terms of dividends andinterest but you can get the benefit of movements from such events and announcements.

Losses cannot be offset against capital gains, as can be done with traditional forms of share investments.

Due to how spread betting works you can lose more than your initial deposits, which issomething which isn't a worry with traditional financial products.

Spread betting is not geared towards long term investments, due to the costs involved inkeeping a trade open over multiple.

The Similarities & Differences between CFD's & Spread BettingOne common confusion out there in the trading public at large is the difference betweenCFD's & Spread Betting. The difference can be hard to see, but there is a very importantsimilarity between the two products in the fact they are both leveraged investmentproducts.

The SimilaritiesBoth products are derivative based products. This means you don't own the underlying


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share or commodity but are trading on movements in prices within that particularly assetclass.

Both CFD trading and Spread Betting involve margin trading. You only put up a initialdeposit to cover your position.

You have the option to both short and long asset classes. Allowing you to potentially profitduring both bull and bear markets.

(UK) As you do not own the instrument you do not have to pay Stamp Duty.

Many of the markets on offer through both CFD trading and Spread Betting are the same.

DifferencesPrices offered by spread betting companies are synthetic, i.e the spread is determined bythe spread betting company. While CFD prices often reflect the underlying the value of thetraded commodity.

One important thing to remember is that a CFD company makes its money of thecommission and interest charged. If you lose money on the trade you undertook beyondthese costs your CFD trader doesn't make any extra money. This is different from SpreadBetting companies.

CFD trades are undertaken in a the currency of the underlying asset, so there is a veryslight risk from currency price swings.

Costs of financing a CFD trade are not quoted in the overall price as within in Spreadbetting. But there is a separate financing cost.

A positive for CFD's is that a CFD owner takes part in the corporate actions of thecompany, when holding a share CFD position.

CFD profits are subject to capital gains tax where as Spread betting profits are not as theyare deemed to be gambling. Though Spread betting losses can't be used to offset tax inthe same way CFD losses can.

CFD's can typically be held for longer periods than Spread bets can, which means incertain situations it may be more beneficial to use CFDs. Most spread bet traders aim to

get in and out of a position within a day.These are the main differences between CFD trading and Spread betting

Spread Betting The Very BasicsToday we are going to teach you about the very basics of spread betting using shareprices as an example. We are going to break this down into several steps for you.

Step 1: Getting a quote. You ask for a bid-offer quote from a spread betting company. Thiscan be done in several ways, online, telephone, etc.

Step 2: If you hold the belief that the value of that commodity (in this example Shares) isgoing to rise above the offer price which has been offered by the Spread betting company.In this situation you would buy.


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If you hold the opposite belief to the one above, i.e namely that the commodity (in thisexample Shares) is going to fall below the bid price offered by the spread betting company,in this situation you would sell

Step 3: Pick your stake size, this is the amount you will risk per point movement of thecommodity price. For example this can often be as low as 10p. If you place a 10p stake ona Buy - if the share price rises 10 points above the offer price offered by the spread bettingcompany you would have made a 1 profit.

Step 4: Inform the spread betting company of the funds you wish to risk and place anreasonable stop-loss position in order to prevent large losses.

Example:

Spread Betting Guide to Margins and Margin CallsThe nature of spread betting means that you are not required to cover the full cost of eachspread bet up front but instead your required just to have the necessary amount of funds inyour account to cover any potential, this commonly known as the Notional TradingRequirement (NTR). It is in this way that your able to achieve significant leveragingthrough the use of spread bets.

The Notional Trading requirement is calculated in two different ways:

As 10% of the value of the potential loss that could be made on a trade.

As a multiple of a pre-determined value known as the bet size factor.

In this example the required margin for a long bet on Big Bank PLC is 10. The order amount stands at 1 and the price at 100, so the notional trading requirement is 10 as themaximum potential loss that an individual could make on this trade would be 100.

While your bet is open the bet will enter into either what is known as an open profit or lossposition. This is the calculated profit or loss made from a particular bet depending on themovements in the market. While your bet remains in an open profit position, you have noneed to worry about margin calls. But this is not the case when you are in an open loss

position, the total amount of funds that have to be available from your account increase. If you do not have the required amount of funds in your account what will result is known asa margin call. The spread betting company will contact you.


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In order to keep the trade open with the hope that your position will return to a point whereyou are back in open profit, extra funds will need to be transferred into the account. Howthe company will treat you and how quickly decisions need to be made on your bet willoften depend on how well the company knows you and your history with them. In an idealworld one whats to avoid being forced to close a position by the company.

Is Spread Betting for me?Those who have learnt about the basics of Spread Betting may be interested in theconcept and the goal of making money through Spread Betting but are unsure whether theopportunity is for them. Today we are going to examine whether Spread betting presents agood opportunity for you as an individual.

Remember as with all types of trading Spread betting carries significant risk. When itcomes to spread betting everyone's first rule should be not to risk what they cannot afford.It should also be noted that not everyone is suited to the stressful and tough world of trading. I personally wouldn't suggest Spread betting to some of the more sensitive soulsof this planet. But for the right person a venture into trading could be a very profitable one.

Some even find that trading can be a very addictive activity and every spread better shouldseriously evaluate what is driving them on to keep up at the activity. A study undertaken byGambling commission revealed that when it came to financial spread betting 15% of people became addicted when compared to 1% with other forms of gambling. Another study undertaken by London's CASS business school showed that only 1 in 5 peoplecame out as winners. Though it should be remarked that this is no lower than the ratesexperienced in other forms of casual trading, such as small stockholders and peopleundertaking share deals.

When stepping into the world of spread betting, the risk you take should proportionate tothe knowledge and experience you have of the financial services industry. Lucky spreadbetting allows be people to be exposed to very limited risks from 1p per point and manysites offer demo and practice accounts which can be opened for free, to allow users togain real trading experience with no risk. There is also a wealth of resources available for those who wish to learn more and try different techniques.

Be realistic with your expectations. If you have a busy career with much of your day takenup with other commitments, you may want to limit yourself to one open position a day. If you have a lot of free time you may want to monitor and manage more positions at a time.

Spread betting is not just for those who work in City jobs or the financial services industry,a customer survey undertaken by ETX Capital showed that only 8% of their membersworked in the financial services sector. Though clearly having a background in financialservices may come in very handy for those interested in Spread betting.

Don't enter blindly and take your time to learn, know your limits and Spread betting couldbecome a very rewarding opportunity for you. But you should also be ever vigilant of therisks that you are taking.

Explaining the Spread: Underlying Price vs The Spread

The Spread is unsurprisingly one of the key factors in Spread betting. It is also one of thereasons why Spread betting is relatively simple and hassle free. When it comes to tradingin physical shares there are lots trading fees and commission that need to be paid (these


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include stamp duty, capital gains and brokerage fees). By contrast when undertaking aspread bet all the costs are calculated into the spread offered by the spread bettingcompany. All the trader has to take into account is the price movement in relation to thespread on offer.

The Spread is derived from the overall underlying price. This is why Spread betting is a

form of derivative trading, as the Spread is derived from the Underlying price. If Big BankPLC is trading on the Stock Exchange at 100p, a Spread betting company may offer a bid-offer price of 99p-101p for the day. In this case the Spread is 2p. This spread cost is wherethe spread betting companies make their profit, it is also where all the costs of your tradingare covered. How the bid-offer spread is calculated depends on company to company butis often calculated as small percentage of the market price.

How quickly the spread bid-offer changes depends on changes in the underlying market. If Big Bank PLC share prices moves 5p in an hour it is likely that the related Spreads willmove by the same amount. When it comes to quarterly futures it is possible that the effectcould be even sharper. Many of the Spreads on offer will often radically change due to thelevels of volatility in the market, this is especially true when price sensitive information or announcements come to light.

This makes shopping around an attractive proposition while small differences in Spread'sappear to not make a huge amount of difference. But getting a good deal on your spreadcan make all the difference as it can be the difference between a profitable and nonprofitable bet. Even tiny differences in spread's can make huge differences when the valueof the spread bet is particularly large.

A Basic Guide To Spread Betting Order TerminologyIt helps to know some of the key terminology when it comes to placing Spread bettingorders and here at Made to Trade we aim to help. This post will help you explain them toyou, so you will be able to tell VWAPs from your MOOs and OCOs.

Market Order- A market order is an order to fulfill an order to buy or sell at the currentmarket price- e.g Buy Big Bank PLC @ 1p per point at 100p would be a market order.

Limit Order- A limit order is an order to sell or buy at a limit price. This limit price isnormally to buy or sell above the current market price- e.g Buy Big Bank PLC @ 1p per point at 102p would be a limit order, if Big Bank PLC was currently trading at 100p.

Stop Loss Order- A stop loss order is an order aimed to stop losses at a certain level. Witha long client it will be when the market falls to a certain level and with a short client when amarket climbs to a certain level. Stop Loss orders are used with an open position in order to provide protection against the market moving against there position. e.g a client placinga Buy order for Big Bank PLC @1p per point @100p, might chose to place a stop order at94p to limit his loss.

Stop To Open Order- A stop to open order is an order to open a position at certain level,either if the market is falling or rising. These orders are designed to open a position if themarket moves in a certain direction, often used by momentum traders who believe to getinto a position if the market shows particular significant momentum.-e.g client placing a

Sell Order for Big Bank PLC @1p per point @95p, if share was trading at 100p this wouldbe a significant movement.


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GFD-(Good for the Day) the order is Good For the rest of the trading Day in question.

MOC-(Market on Close) order will be completed at market price at the close of the market.

MOO-(Market on Open) opposite as the order will be completed at market price at theopening of the market.

OCO-(One Cancels the Other) their are two order are two be executed but one cancels theother order.

GTC- (Good Until Cancelled) an ongoing order (different from an Ongoing trade), the order will remain good until it is cancelled by the client.

Fill or Kill- for a particular large order a broker is instructed by the client to get a price for the whole quantity of the order, if he is unable to get a price then the order is killed andcancelled.

VWAP-(Volume Weighted Average Price) an order which is to be fulfilled throughout theday to get the average price of that particular day.

Factors to consider when opening a Spread Betting account?When your planning to open your first Spread betting account, you will besieged withdifferent providers vying for your deposit. This can be particularly bewildering for a newbie,so we have decided to provide a list of what one should look for when picking a Spreadbetting provider. It is important to find a provider(s) that suit your needs the most and eachindividual will have factors that are more important to them. This list is not in any particular order.

Margin requirements Types of account on offer. Including whether the firm offers deposit or credit

accounts. The online trading platform on offer, its ease of use and the reliability of the online

platform The product range on offer, different providers will often offer different products.

Looking for the range of products you feel most comfortable with may be verybeneficial in the long run.

Telephone trading, does the provider have such a service and the quality of such aservice. Even if you plan to trade online, you can never be sure when you may lose

your internet connection. The speed of execution either by phone or online. Faster the execution the better. Many Spread Betting providers offer educational facilities and practice trading

accounts. As a new depositor you may want take advantage of these. Do they offer analysis to their clients. Some firms offer fundamental economic

analysis to their spread betting clients. Material they offer for technical charting. Interest paid on cash sitting in your account. Some Spread betting companies offer

this to depositors, similar to the type you would get on a normal bank account. Theimportance of this increases the larger the amount you have deposited.

The range of Stop-Losses they have on offer and the costs involved in having aguaranteed stop loss. Other services that add value. Including how good the service is.


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Beginners Spread Betting Risk Management the use of Stop LossesRisk management is one of the keys to Spread Betting. Preserving and protecting your working capital is key if you want to make a return from Spread Betting in the long run. Inorder to do this you want to minimize your losses when the market moves against you andmaximize your returns when the movement is in your favor. To profit from Spread Betting abalance needs to be found between these two objectives.

When it comes to protecting your capital and managing your risk, the Spread bettingindustry has responded by providing facilities called Stop Losses. There are different kindsof Stop Losses available but the idea is the same a Stop Loss is the level which your tradewill be closed limit your losses to any further market movement against you. A stop losswill be set at the level you wish it to be set at, though some Spread betting providersrequire them to be at least 5% away from the original value of the commodity, currency or stock being traded.

A stop loss is essentially another trade. For example if you implement a Buy trade with astop loss as well, which is in the end not needed. You will need to communicate with your spread betting company, two things. To close your Buy trade and to cancel the stop loss.Some companies will automatically cancel your stop loss when you chose to close your trade, but it is important to check with your Spread betting company whether this is thecase with them.

Types of Stop LossThere are several different types of Stop Loss that are on offer and all have variousfeatures which may make them less or more attractive to you depending on your viewpoint. A Guaranteed stop loss normally comes with an extra charge in the form of aslightly larger spread but it gives you the guarantee that you trade will closed if it hits your stop loss level. A guaranteed stop loss is only available at the opening of a trade due to thefact of getting a wider spread to cover the cost. While a non Guaranteed stop loss is a freestop loss but the spread betting company doesn't guarantee that the trade will be closed atthe exact level that you determined, for example if 5% swing happened very quickly youmight not be protected against the the whole movement before your stop loss kicked in.

Guaranteed stop losses can be extremely useful in very volatile markets in protecting your capital against violent market swings. While a non guaranteed stop loss may be better when you can monitor market movements personally in a less volatile market. SomeSpread betting companies will require that you have a mandatory stop loss as they believethis is a necessary tool in proper risk management. While this has its advantage with all

your trades coming with a stop loss (albeit not a guaranteed one), it also has thedisadvantage that sometimes your trades might be closed by large momentarymovements.

There can also something called a Trailing Stop Loss, which is designed to protect your profits in a situation where your trade is in profit but where you are worried the marketmight start to move against you lowering your profit. Moving your stop losses in order toprotect profits is an another way to maximize your returns.

Made to Trade Beginners Guide to Spread Betting

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