Financial Spread Betting on Differential Markets

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Differential Spread Betting

Differential Spread Betting

A guide to spread betting on differential markets: Important: Please note that when both markets in a differential e.g. the Brent crude and US crude, have very similar prices then the market may not be available.


What is a Differential Market?

In the world of spread betting, a 'differential' market is just the difference between two other markets.

For example, the Wall St 30 / UK 100 differential is the difference in value between the Wall St 30 stock market index and the UK 100 stock market index.

If the underlying Wall St 30 index is currently trading at 18,550 and the underlying UK 100 index is priced at 6950 then Financial Spreads might offer a Wall St 30 / UK 100 differential market of 11,598.1 - 11,601.9.

Therefore, clients could spread bet on the difference between the two stock markets getting wider than 11,601.9 or getting narrower than 11,598.1.

Thinking of this in another way, the differential lets you speculate on the relative performance of the Wall St 30 versus the UK 100.

If you thought that the US stock market would perform better than its UK counterpart then you could spread bet on the differential to increase.

On the other hand, if you felt that the UK 100 would outperform the US market then you could choose to spread bet on the differential to decrease.

This works out as being the same as going long of one market and short of the other, however, with a differential market:

Where Can I Spread Bet on Differential Markets?

Financial Spreads provides a range of differentials that consider the relative strength of some of our most popular markets: Investors can also trade on more than 1,000 other spread betting markets including individual stock market indices and a variety of shares, foreign exchange pairs and commodities.

Where Can I Access Live Differential Prices?

Financial Spreads offers investors real-time pricing on over 1,000 markets like stock market differentials and a wide variety of other indices, foreign exchange, commodities and equities markets.

Where Can I Get Live Differential Charts?

When trading with Financial Spreads investors can look at a professional level charting package for more than a thousand financial markets.

To aid your analysis, the charting package has an array of options including:
Sample FinancialSpreads stock market index candlestick chart:

Stock Market Index Spread Betting Charts



Guide to Spread Betting on a Stock Market Differential - Germany 30 / France 40

As an example, let's assume you log on to the FinancialSpreads website and the platform is showing a quote of:

  Germany 30 / France 40 Differential March Sell

6790.7
Buy

6794.5


This is a brief guide to how the market works...

MarketGermany 30 / France 40 Differential March Futures
The Spread Betting Price6790.7 - 6794.5
How the Spread WorksNow you can trade on the Germany 30 / France 40 differential market to close:

  Spread Betting Higher than 6794.5, or
  Spread Betting Lower than 6790.7

On the settlement date for this March futures market, 20 March 2015. This is a 'Futures' spread trading market and therefore the bet will close automatically on a set expiry date. Having said that, you can usually close your position, during trading hours, before the expiry of the contract.

Note also that this futures market does not have daily financing fees.
Traded UnitsBets on the Germany 30 / France 40 differential market are priced in £x per point.

Where a point is 1 point of the market's price movement.

E.g. if the Germany 30 / France 40 differential moves by 40 points then you would lose / win 40 times your stake.
Stake per UnitYou choose how much you would like to risk per point, e.g. £1 per point, £4 per point, £20 per point etc.
Simplified Trading ExampleIf, as an example, you had a stake of £3 per point and the Germany 30 / France 40 market moves 33 points, you would lose/win £3 per point x 33 points = £99.


Worked Example - Taking a Long Position on the Germany 30 / France 40 Differential

Financial spread trading on the differential market to move up

You Now Decide to Buy or Sell The Germany 30 / France 40 differential to settle:

  Spread Betting Higher than 6794.5? or
  Spread Betting Lower than 6790.7?

When the market expires, 20 March 2015.

Let's Say You Want to Go Long   Spread Betting Higher than 6794.5
You Decide Your Stake Size, Let's Say You Select £3 per point
So What Next?
  • You make a gain of £3 for each point the Germany 30 / France 40 rises higher than 6794.5
  • You will make a loss of £3 for every point the Germany 30 / France 40 decreases below 6794.5
When You Buy a Spread Bet Your Profits/Losses = (Settlement Price - Opening Price) x stake
 
Trading Example 1
The Germany 30 outperforms the France 40 and so the differential market increases to 6848.9 - 6852.7. Therefore you'd see this on Financial Spreads:   6848.9   6852.7
Time to Take Your Profit? You can opt to leave your trade open, letting it run to the expiry date, or close it, i.e. close your trade to lock in a profit. For this example, you opt to settle your bet by selling the market at 6848.9.
Your Profits/Losses = (Settlement Price - Opening Price) x stake
(6848.9 - 6794.5) x £3 per point
54.4 points x £3 per point
Your Profits/Losses = £163.20 profit
 
Trading Example 2
The Germany 30 / France 40 differential drops.
Time to Limit the Loss? At this point, you could choose to leave your trade open, letting it run to the settlement date, or close it in order to limit your loss. In this case you choose to let your position run until expiry. The contract finally settles at 6748.3.
Your Profits/Losses = (Settlement Price - Opening Price) x stake
(6748.3 - 6794.5) x £3 per point
-46.2 points x £3 per point
Your Profits/Losses = -£138.60 loss


Worked Example - Selling the Germany 30 / France 40 Differential

Online spread betting on the differential market to decrease

You Consider Whether to Buy or Sell The Germany 30 / France 40 differential settling:

  Spread Betting Higher than 6794.5? or
  Spread Betting Lower than 6790.7?

When the contract is settled, 20 March 2015.

You Might Decide to Sell   Spread Betting Lower than 6790.7
You Choose Your Stake, Let's Assume You Select £2 per point
What Next?
  • You will make a loss of £2 for every point the Germany 30 / France 40 market pushes higher than 6790.7
  • You make a gain of £2 for every point the Germany 30 / France 40 market falls lower than 6790.7
If You Are Betting on a Market to Go Down Your Profits/Losses = (Opening Price - Settlement Price) x stake
 
Trading Example 3
The Germany 30 / France 40 differential market slips
Take a Profit? At this point, you may decide to keep your trade open, and maybe let it run to the settlement date, or close it and lock in a profit. For this example, you opt to let your position run until the market expires. The contract settles at 6725.5.
Your Profits/Losses = (Opening Price - Settlement Price) x stake
(6790.7 - 6725.5) x £2 per point
65.2 points x £2 per point
Your Profits/Losses = £130.40 profit
 
Trading Example 4
The Germany 30 / France 40 differential rises and the spread trading market is revised and changes to 6842.3 - 6846.1, i.e.   6842.3   6846.1
Time to Limit Your Loss?You could opt to let your position run to the expiry date or close it to limit your loss. In this instance you choose to close your position by buying the market at 6846.1.
Your Profits/Losses = (Opening Price - Settlement Price) x stake
(6790.7 - 6846.1) x £2 per point
-55.4 points x £2 per point
Your Profits/Losses = -£110.80 loss

Where Can I Practice Financial Spread Betting on Differential Markets?

Financial Spreads provide a free Practice Account which means you can test new trading strategies, practice trading, analyse the charts and test trading orders on differential markets.

The Practice Account has a large selection of markets such as FX, commodity markets, equities and index markets.

Open a Free CFDs / Spread Betting Demo Account


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support@financialspreads.com

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