The Financial Spreads Beginners Guide to Spread Betting

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What are the Benefits of Spread Betting?

• Wide Range of Markets - spread betting allows investors access to many markets that were previously restricted to institutions, banks and wealthy investors - read more
  
  
• No Commissions or Broker's Fees - read more
  
  
• Trading on Margin - you can start trading with a small amount of capital. Leveraged trading certainly has it's advantages but it's important to remember that it means you can lose more than your deposit - read more
  
  
• Tax Free Profits* - gains are tax free. Unlike share trading or CFD trading where your gains are potentially taxed at your current income tax rate, spread bets are not subject to capital gains tax - read more
  
  

Also:

• Alternative to Traditional Stock Broking - read more
  
  
• Risk Management Orders - read more
  
  
• Speculate on Markets to Go Up or Down - read more
  
  
• UK Regulated Market - read more
  
  
• Stake Size of Your Choice - read more
  
  
• Trade Overseas Markets in Your Currency - read more
  
  
• Tight Spreads - at Financial Spreads we want to provide value for money and top quality service.
  
  You'll find that our spread quotes are very competitive amongst other spread betting companies.
  
  In some cases, you will find that our spreads are extremely competitive in relation to the live, underlying market quotes.
  
  For example, during market hours our UK 100 rolling cash market has a spread of just 0.8 points, whilst the spread on our EUR/USD rolling spot market is just 0.7 points.
  
  
• 24 Hour Trading - we offer out of hours trading on a number of popular markets throughout the night from Sunday evening until Friday evening.
  
  Markets include gold, crude oil and more than 30 forex markets - read more
  
  
• Trading Tools - many investors use technical analysis to guide their investment decisions.
  
  We provide live spread betting charts for every market to help you with your technical analysis.
  
  
• Hedging an Existing Portfolio - many investors use spread betting as an additional tool to hedge their existing portfolio.
  
  For example, if you have some shares which look like they will decrease in value in the short-term, you could short the value of these shares using a spread bet and therefore possibly make a profit to counter-balance the decreasing value of your shares.
  
  
• Ease of Understanding - it is often easier to understand spread betting than other forms of financial trading.
  

The Risks of Financial Spread Betting

Do Not Forget the Downside

Although you can make substantial profits from spread betting, if the markets move against your bet, your losses can also be substantial.

Spread betting, CFDs and margined forex trading are leveraged products which carry a high level of risk to your capital. You can lose more than your initial deposit so you should ensure spread betting, CFDs and margined forex meet your investment objectives and, if necessary, seek independent advice. Click here to see the full risk warning notice.

Note that you can use Stop orders and Guaranteed Stop orders to help reduce your downside.

With our standard FinancialSpreads+ accounts, Stop orders are automatically added to each trade. With Financial Spreads MT4 accounts, Stop orders are not automatically added to each trade however, we recommend that you add a Stop order manually.

With any account, if a Stop order is triggered it is subject to market gaps unless you specified for your Stop order to be guaranteed.

Other drawbacks include:

• Expiry Dates - you incur your loss (or profit) when you close your trade. Don't forget, all spread bets have an expiry date
  
  
• No Dividends - if you are spread betting on equity markets, you do not get paid a dividend because you are betting on the price movement of the market, you don't own the actual shares. Having said that, we do have dividend adjustments - read more
  
  
• Wider Spreads - the 'spread' with a spread betting market is often wider than the 'spread' of the underlying cash market. Therefore you have to factor in a certain increase or decrease in the price before your position is profitable
  
  
• No Offsetting of Losses - losses cannot be offset against capital gains you make from your conventional share trading or CFD investments
  
  

How Do I Calculate My Profit/Loss?

Once you have chosen the market you want to trade, you can then bet with a stake of your choice, which will represent your profit or loss per point of movement of that market. Note that each market has its own individual maximum/minimum allowable stake.

You can choose to bet that the market will rise, likewise, you can bet that it will fall.

If you are right, you will make a profit of your stake multiplied by each point that the market moves in your favour.

If you are wrong then you will make a loss of your stake multiplied by each point that the market moves against you.

For this reason, you must be aware that your losses can increase dramatically if the markets move substantially in the opposite direction to your bet, e.g. if you 'Buy' the UK 100 (bet that it will rise) and the index moved sharply lower.

This diagram shows how your profit/loss is calculated depending on whether you buy or sell the market, assuming your stake is £1:


Spread betting profits/losses are recognised as the winnings/losings of a bet, and are therefore free of Capital Gains and Income Tax in the UK.*

UK 100 Spread Betting Example

Let's imagine you sign into a FinancialSpreads account and see:



Here is a guide to how it works.

The Market	UK 100 Rolling Daily
Spread Trading Price	6268.0 (the sell price) - 6269.0 (the buy price)
What This Means	You can take a position on this UK 100 Rolling Daily market (which has a 1 point spread) to move:   Above 6269.0, or   Below 6268.0 This is a Rolling Daily spread bet which means that there is no expiry date. If you don't close your trade and the trading session ends then your position will automatically roll over into the next trading day. Note that if a trade rolls over then you will normally either be charged or receive a small fee for overnight financing based upon whether you are speculating on the market to fall or rise. For more information also see Rolling Spread Betting.
Points (Units) Traded	Spread bets on the UK 100 market are made in £x per point. Where a point is 1 point of the index's price movement. E.g. if the UK 100 changes by 30 points then you would win / lose 30 multiples of your stake.
Stake Size	You decide how much you want to trade per point, e.g. £1 per point, £4 per point, £20 per point etc.
Brief Staking Exercise	If you decided on a stake of £3 per point and the UK 100 moves by 24 points, you would lose/win £3 per point x 24 points = £72.

Worked Example - Buying the UK 100 (or 'Going Long')

Spread betting on the stock index to increase

You Select Whether to Buy or Sell	The UK 100 to go:   Above 6269.0? or   Below 6268.0?
Let's Say You Decide to Go Long	Above 6269.0
You Select Your Stake Size, Opting for	£2 per point
So Now What Happens?	You make a profit of £2 for each point the UK 100 moves above 6269.0 You make a loss of £2 for every point the UK 100 falls below 6269.0
If You Are Betting on a Market to Increase Your Profits/Losses =	(Closing Price - Opening Price) x stake
Example 1	The UK 100 climbs to 6325.9 and so our financial spread betting market is adjusted and moved to 6325.4 - 6326.4, i.e. the market moves to:   6325.4   6326.4
Lock in a Profit?	At this point, you may opt to let your spread bet run or close it, i.e. close your trade for a profit. In this example you choose to close your position. To close your trade you simply place a bet in the opposite direction (with the same stake size). So to close this £2 buy trade you place a £2 sell trade. The reality is slightly less confusing because when you are logged in, you can simply click the 'Close' button.
Your Profits/Losses =	(Closing Price - Opening Price) x stake
	(6325.4 - 6269.0) x £2 per point
	56.4 points x £2 per point
Your Profits/Losses =	£112.80 profit
Example 2	The UK 100 drops and the Financial Spreads market becomes 6218.8 - 6219.8, therefore you would see this on our platform:   6218.8   6219.8
Limit Your Loss?	You may decide to keep your trade open or close it, i.e. close your trade to limit your losses. In this case you decide to close your trade by selling the market at 6218.8.
Your Profits/Losses =	(Closing Price - Opening Price) x stake
	(6218.8 - 6269.0) x £2 per point
	-50.2 points x £2 per point
Your Profits/Losses =	-£100.40 loss

Worked Example - Selling the UK 100 (or 'Going Short')

Spread betting on the stock index to decrease

You Now Decide Whether to Go Long or Short	The UK 100 to push:   Above 6269.0? or   Below 6268.0?
Let's Assume You Choose to Sell	Below 6268.0
You Select How Much to Risk, Let's Assume You Opt For	£3 per point
So Now What?	You make a loss of £3 for every point the UK 100 moves higher than 6268.0 You make a profit of £3 for every point the UK 100 goes lower than 6268.0
When Going Short of a Market Your Profits/Losses =	(Opening Price - Closing Price) x stake
Example 3	The UK 100 falls to 6222.4 and so our spread betting market is adjusted to 6221.9 - 6222.9, therefore you'd see:   6221.9   6222.9
Time to Take a Profit?	You can choose to let your spread bet run or close it and lock in your profit. In this example you choose to close your position by buying at 6222.9.
Your Profits/Losses =	(Opening Price - Closing Price) x stake
	(6268.0 - 6222.9) x £3 per point
	45.1 points x £3 per point
Your Profits/Losses =	£135.30 profit
Example 4	The UK 100 increases and the spread trading market adjusts and moves to 6307.1 - 6308.1, i.e.   6307.1   6308.1
Close and Limit the Loss?	You can decide to let your trade run or close it, i.e. close your position to limit your losses. In this example you decide to close your trade and therefore buy the market at 6308.1.
Your Profits/Losses =	(Opening Price - Closing Price) x stake
	(6268.0 - 6308.1) x £3 per point
	-40.1 points x £3 per point
Your Profits/Losses =	-£120.30 loss

What Markets Can I Spread Bet on?

One of the problems for spread betting companies is the word 'betting' as it can often provide a false impression to the marketplace.

Spread betting is in fact a highly adaptable trading tool.

With a Financial Spreads account, we offer spread betting markets on more than 1,000 global assets including:

• World Stock Market Indices
  • UK 100
  • Germany 30
  • Wall Street
  • US 500
  • Japan 225
  • Other International Indices
  
  
• Individual Shares
  • UK Stocks
  • US Stocks
  • Other International Stocks
  
  
• Foreign Exchange Pairs
  • Majors - USD/JPY, EUR/USD, GBP/USD etc
  • Minors
  • Exotics
  
  
• Commodities
  • Metals - gold, silver
  • Energies - Brent crude oil, US crude oil, Brent/US crude differential

Free Spread Betting Practice Account

If you are new to spread betting, we highly recommend that you try our free Demo Account.

The Financial Spreads Demo account:

• Mirrors our live trading system other than the need for you to deposit any funds
• Lets you trade with virtual funds
• Helps you get to grips with the concept of spread betting (and CFDs)
• Helps you to familiarise yourself with our trading platform before you begin live trading

Spread Betting on the Financial Spreads Platform

Financial Spreads offers a simple, user friendly platform.

When you log in, browsing our range of markets and prices is quick and easy.




We offer real-time spread betting and CFD charts on all of our markets and they come with a host of useful functions to help your analysis.

Once you have completed your research, select the market of your choice by clicking on the 'Trade' button.

A trading 'ticket' will pop up and show the live Sell/Buy price.



This prices will change in real-time as the market fluctuates.

You then update the 'Stake' field to your desired trade size and can customise the other aspects of your position.

If you wish to buy, click on the 'Buy' button, or you can sell by clicking the 'Sell' button.

Once your trade has been accepted, an online confirmation will appear on your screen detailing all of the information concerning your trade (the market, the price, stake, trade reference and stop loss level).

You can also check the details of the trade via the 'Open Positions' tab.

To Close or Amend your open positions, you simply look at the 'Open Positions' tab of your 'Trading Activity' window. This shows your currently open positions and the options available.

Stop Loss Orders

You can use Stop Loss orders to help reduce your downside.

A Stop Loss is a trading order which tells our system where to stop and close your trade if the market moves against you.

Stop Losses are used by investors to limit the potential downside of a trade. This is because the leveraged nature of spread betting can create large losses if the market doesn't move as you hoped.

One of the great things about a Stop Loss is that it does not limit your potential upside.

With FinancialSpreads+ accounts, Stop orders are automatically added to each trade.

With FinancialSpreadsMT4 accounts, Stop orders are not automatically added to each trade however, we recommend that you add a Stop order manually.

With any account, if a Stop order is triggered it is subject to market gaps unless you specified for your Stop order to be guaranteed.

If the market gaps from one price to another, and doesn't trade at the level of your Stop Loss, your Stop order will be activated at the next traded price.

We do offer 'Guaranteed Stop Losses' for a small fee - see below.

Importantly, all Stop orders are on an 'our quote' basis, which means that your position will be closed at the Financial Spreads price that's quoted and not the live market price level.


Stop Loss Example

Let's say our Royal Mail market is currently trading at 499.0-503.0.

If you believe that the share price will rise, you would "buy" at 503.0.

You need to decide your stake; for this example, you choose a stake of £2 per penny movement.

This means that you will make a profit of £2 for every penny that the share price rises and you lose £2 for every penny that the share price falls.

Now that the trade is made, if you have the standard FinancialSpreads+ account, our platform considers the market type, the price and the funds in your account and automatically adds a Stop Loss level at, let's say, 453.0.

So, if the market falls to 453.0, then your trade will automatically close to prevent further losses.

If the Financial Spreads quote for Royal Mail rose then you may decide you want to close your position to realise the profit.

However, if you left the trade running and the share price started to slide then it may fall down to 395.0 - 399.0.

Fortunately, your Stop Loss level would have closed the trade for you at 453.0. You have still made a loss, but it was not as big as it could have been (as the chart below shows):

• Potential Loss without a Stop Loss: (Closing Price - Opening Price) x Stake = (395.0 - 503.0) x £2 per penny = -£216.
  
  
• Actual Loss with Stop Loss: (Closing Price - Opening Price) x Stake = (453.0 - 503.0) x £2 per penny = -£100.
  

Stop Loss Orders and Market Gaps

Sometimes, normal Stop Loss orders can suffer from a problem known as 'Gapping' or 'Slippage'.

This means that a market 'gaps' across, or 'slips' through, a Stop Loss level, i.e. the market spikes up or down and never trades at the level of the Stop.

When that happens your Stop Loss will be activated at the next traded price and therefore your trade would be closed for a greater loss than expected.

Although this is less likely in highly liquid markets, it's still a possibility when volatility moves the price around very quickly.

Some markets are also more likely to gap over the weekend.

As a result, Financial Spreads offers clients the option of using 'Guaranteed Stop Loss' orders.


Guaranteed Stop Losses

For a small fee, a Guaranteed Stop Loss will always close at the desired price, regardless of market gaps.

As such, a Guaranteed Stop Loss puts an absolute limit on the potential losses of a trade. Again, it does not limit your upside.

For more information, see our guide to Guaranteed Stop Loss orders.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

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