Spread Betting is a derivative product that allows you to bet on the price movement of a financial market or individual financial instruments. Spread Betting can be used by speculators to profit from both rising and falling markets without the hassle of having to take physical ownership of the underlying asset. Unlike traditional share trading you are able to ‘go short’ on bets meaning that if you believe that the FTSE 100 is going to drop, you are able to sell first with the aim of buying it back later at a lower price.
When betting on the movement of a financial instrument, each point the instrument moves in your favor will result in a gain to you and each point that a position moves against you will result in a loss. As Spread Betting involves leverage, both profits and losses are magnified.
Spread Betting is a margined product that requires you to deposit a small percentage of the full value of the position that you hold, also known as the ‘Margin’. Using leverage enables exposure to large positions with only a small outlay.
Spread Betting’s popularity is very high amongst UK residents as it enables advantages similar to that of CFDs but for full UK residents it also provides a Tax Free* solution to trading. Spread Betting means that traders/betters are not liable for stamp duty or capital gains tax on winnings.
With online trading platforms you are able to trade a wide range of equities in markets ranging from the UK and Europe to America and Asia. You are also able to bet on a wide range of instruments from commodities such as gold and silver to indices such as the FTSE or the NASDAQ. Our platform also gives you the ability to bet on some of the major currency pairings such as the GBP, USD EUR and AUD.
Equity Spread Betting
How Equity Spread Betting Works
The concept of Spread Betting equities is simple. An Equity spread better buys or sells a position over any equity listed on a stock exchange and receives the difference between the opening and closing price of the contract. Spread betting is a leverage product. So, a spread better gets the additional benefit of outlaying only a portion of the capital and can also short sell stocks on various exchanges to profit from falling markets.
Here’s an example: a trader wants to invest in VOD. If the trader believes the price of VOD will rise, they can place a bet on VOD but only have to outlay a 5% margin requirement of the full notional value of the position. As VOD reaches the desired price, the trader would simply sell the same position, leaving the spread better with all the profits gained from that position less financing charges and commission.
DMA Equity Spread Betting
online trading platforms offers its clients access to Direct Market Access (DMA) equity spread betting. Unlike most spread betting providers, with online trading platforms, there is no adjustment of prices, increases in spreads, no middle man and no delays on transactions which can result in re-quoted prices. Clients have access to prices which are based exactly on market values.
As a result, our clients can access the full market depth, buy and sell orders in the market for stocks they choose, and participate in being a price maker, not just a price taker. DMA gives traders the ability to participate in opening and closing market auctions— this allows traders to take advantage of the opening and closing prices of a stock. DMA equity Spread Betting also means traders can access volumes in markets to confirm their trades — this will help with your trading strategies.
Liquidity
Through Direct Market Access, online trading platforms offers its traders access to market liquidity. One hundred per cent of all trades are hedged in the underlying market; this means traders have complete transparency. Traders can see the volumes available at each price step and can decide whether or not to participate without being re-quoted.
Index Spread Betting
Indices
online trading platforms offers a wide range of the world’s biggest index products and at competitive pricing, like all of our products. Most index products combine major stocks on an exchange to measure their performance as a whole; this allows you a broad look at the market’s performance rather than that of individual stocks. Index spread betting suit traders who prefer to hedge not on one stock but on the whole direction of the market. Another huge advantage of Index spread betting is that they trade nearly 24 hours a day, from Monday to Friday, with only two small breaks a day.
Online trading platforms Indices
online trading platforms believes in strong transparency and we offer only competitive Index spreads. Clients receive price feeds directly from these leading global futures markets. The futures exchanges we provide are:
- Sydney Futures Exchange
- NYSE LIFFE
- EUREX
- CME
Direct price feeds to these exchanges means access to tight spreads at a very low cost for our clients. You can trade popular index products such as the Aussie 200, S&P 500, Dow Jones, NASDAQ, DAX and more, all from the same online platform.
How Index Spread Betting Works
Here’s an example of how Index Spreads work.
Index spreads track a parcel of equities on any one exchange and their performance. For the FTSE 100, the prices quoted by online trading platforms will match the underlying prices of LIFFE.
The FTSE 100 contract tracks the performance of the top 100 blue chip stocks on the LSE. You could buy a contract if you thought the FTSE 100 would go up, or you could sell it if you believe the market will go down. Each point that the index goes in your favour gains you however many pounds per point placed on the bet; for each point the index goes against you, your loss will be multiplied by the pounds per point.
Buying FTSE 100
You decide that the FTSE 100 is going to rise over the next day or so based on your research. In this case to make a profit you have decided to place a bet of £10 per point on the FTSE 100 contract.
The current quote for the FTSE 100 is 5299.5 – 5300.0. You wish to place a bet at the offered Asking price of 5300.0.
Opening Position – 5300.0 x 10 = £53,000
The day the FTSE 100 has risen and the current quote is 5360.0 – 5360.5. The better decides to sell their FTSE 100 contract at the bid price of 5360.0 to close out the long position.
Closing Position – 5360.0 x 10 = £53,600
Profit/Loss = £600
Make note that the standard commission on this would have been £3 to open the position and £3 to close the position. There are no financing implications associated with online trading platforms Index products. Therefore net profits would have been £594
Forex Spread Betting
Foreign Exchange
Commonly referred to as FX, or Forex, Foreign Exchange is the world largest OTC market and one of the most popular trading instruments for spread betters. The Foreign Exchange markets are the world’s most liquid markets with global turnover in the trillions daily. Foreign Exchange markets operate 24 hours a day and only rest on weekends giving traders opportunity to trade whenever it suits them. online trading platforms offer all global major currency pairs giving some of the industries tightest spreads.
How Foreign Exchange Works
The concept of FX is that a trader will pick the performance of one currency and match it against another. Hence every time you trade you will be long one currency and short another. The first currency in the pair is referred to as the base currency and the second referred to as the quote/counter currency. As an example let’s take a currency pair GBP/USD. Here the base currency GBP is the Great British Pound and the quote currency would be the US Dollar. If we thought that the GBP would strengthen against the USD we would then purchase a quantity, let’s say £50,000 of GBP/USD in the hope that it goes up. In this instance we would be long £50,000 GBP and be short the equivalent in USD.
Liquidity
The reason Foreign Exchange markets are so large and liquid is because of the market participants involved. Major traders of FX include Institutional investors, Governments, Central Banks, Global Banks, Hedge Funds, Retails investors and other financial institutes. online trading platforms uses some of the world’s largest liquidity providers to give our clients access to these feeds with industry leading spreads.
Online trading platforms’ FX Spread Bets are offered at a low margin rates starting from 1% meaning clients can access leverage as high as 100/1.
Example – Buying GBP/USD
Opening the position
You decide to go long of the British Pound against the US dollar. Our quote is 1.5519-1.5521, and you will buy £20,000 at 1.5521.
The value of your position is £20,000 x 1.5521 = £31,042. To open the position there is a 1% margin requirement based on the full notional value.
Your margin requirement is therefore 1% x £31,042 = £310.42.
Interest adjustments
Open margin FX and Metals Contracts held at the end of a trading day at 21:59 London local time are not closed and opened to account for these Swap Rates. Instead, online trading platforms simply applies the equivalent financial consideration to the position as if it were rolled over as a Finance Charge Adjustment or Finance Credit Adjustment.
The Swap Rate for a position opened on Wednesday and held open Overnight is three times that of other days; the reason for this is that the Value Date of a trade held open Overnight on a Wednesday would normally be Saturday, but since banks are closed, the Value Date is Monday and the Client incurs an extra 2 (two) days of interest. From Friday to Monday, Swap Rate is charged once.
The calculation for an overnight Finance Charge Adjustment / Finance Credit Adjustment for each day that a long or short online trading platforms margin FX and margin FX is held Overnight is as follows:
F = S * L * P
F =Daily Finance Charge (negative) / Finance Credit (positive)
S = Swap Rate (positive or negative)
L = Number of Lots
P = Pip Value in Account Currency based upon 1 Lot
Examples:
If you hold a short 200,000 EUR/USD position Overnight and the Account Currency is USD, then the Daily Finance Charge is -2.80 USD = -0.14 (Swap Rate) * 2 (Lots) * 10 USD (Pip Value)
If you hold a long 100,000 USD/JPY position Overnight and the Account Currency is USD, then the Daily Finance Charge is -0.39 USD = -0.03 (Swap Rate) * 1 (Lots) * 13 USD (Pip Value) * -1
Profits/Losses
Opening transaction: £20,000 x 1.5521 = £31,042
Closing transaction: £20,000 x 1.5721 = £31,442
Profit on trade: £400
If the price had fallen to 1.5321 and the trade exited at this price then the trader would have lost £400.