Financial Spread Bet
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About Financial Spread Betting
Financial spread betting on the financial markets can be exciting, especially when you consider the profits that you might make. And there is little downside to making a profit. Nevertheless, there is a distinct downside to speculating on the financial markets. Whether you speculate on shares, or even if you invest with a newer products like ETFs or CFDs, there will always be risks.
You are probably on this website because many investors are turning to financial spread betting. Spread betting offers a quick and convenient investment option for those who want to access to a wide range of local and international markets.
Before we discuss the advantages though, you should note that financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
Financial Spread Bet - Risk Management
So there are risks, but at the same time you can put limits on your bets which can limit your losses without impacting your upside.
You can also trade with small stakes such as £1 per point or $1 per point.
To gain a little exposure you could just trade the popular markets, such as the Stock Market Indices, with smaller stakes. Therefore you could speculate on whether the FTSE 100, S&P 500, Dow, DAX etc will go up or down.
If you speculate on the DAX, also known as the Germany 30, to go up, with a £2 per point stake, and it goes up by 65 points then you would make 65 points x £2 per point = £130.
On the other hand, if the market went against you, dropping by say 45 points, then with a £2 stake you would lose 45 points x £2 per point = £90.
That wouldn't be the best start. However, with several firms like Capital Spreads you can add a Stop Loss at, let's say, 30 points.
If you were betting on the DAX this would mean that your position would be closed if the DAX moved against you by 30 points. Therefore, instead of losing £90, you'd only lose 30 points x £2 per point = £60. (Not all Stop Losses are guaranteed).
However, assuming you correctly predicted the direction of the market, your upside would still be £130 if it moved 65 points or £80 if the DAX moved 40 points.
See below for a more detailed example.
Why Financial Spread Bet?
Financial spread betting has many advantages, not just the risk management aspects mentioned above. To start with, you can financial spread bet on a wide range of asset classes such as:
Also, unlike traditional share trading, you are able to sell a market. Financial spread betting offers you the option of trading in either direction. This means that:
- If your research leads you to think that the price of Gold is going to increase then you can financial spread bet on it to move higher
- Should you believe that the price of a barrel of oil is going to fall, you can ‘short' the market, ie speculate on the crude oil market to drop.
Furthermore, be aware that financial spread bets are not subject to tax*. You don't buy or sell any actual resources, shares or assets. Instead you are only betting on the future value of a given market.
In addition to tax free trading, note that, in contrast with traditional share trading, your trades don't incur commissions or brokers' fees. Although if you keep your trade open and roll it over to the next day then there is often a small charge, see Rolling Daily Spread Bets.
How to Financial Spread Bet
What's the catch? Well we've covered the risks. However, it is probably a good idea to consider the actual trade itself in more detail. In this case we'll look at the most popular spread betting market, the FTSE 100.
Financial Spread Betting Example
At the moment, the price of the FTSE 100 (rolling daily) market is 6015.0 - 6016.0 with spread betting companies like Tradefair.
As with many of the principal indices, investors can place a spread bet on the FTSE 100 either increasing or decreasing. With the FTSE 100 (rolling daily) market, you can spread bet on:
a) The FTSE 100 to move above 6016.0, or
b) The FTSE 100 to move below 6015.0.
Note that with the FTSE 100 market you trade in £X per point, where a point is 1 point of FTSE 100 movement. As an example, if you invested £4 per point and the FTSE 100 index moves 5 points then you would see a change to your profits/losses of £20.
FTSE 100 - Worked Financial Spread Betting Example
As a worked example, let's assume you see the price of 6015.0 - 6016.0. So, following suitable market research, you could think that the FTSE 100 will go higher than 6016.0. This means:
- You think that the FTSE 100 should increase
- Therefore, you decide you are going to go long of the market at 6016.0 and risk £2 per point
- The market increases and so the market changes to 6064.1 - 6065.1
- With the new spread you can choose to take your profit and settle your position by selling at 6064.1
- You bought the spread bet at 6016.0
- Profits (or losses) = (Settlement Price - Initial Price) x stake
- Profits (or losses) = (6064.1 - 6016.0) x £2 per point
- Profits (or losses) = 48.1 x £2 per point
- Profits (or losses) = £96.20 profit
Spread bets don't always go to plan. If the trade did not move as forecast, and had the FTSE 100 decreased in price, with the spread decreasing to 5972.4 - 5973.4, then you could decide to close your position and stop any more losses. To do this you would sell at 5972.4.
- Price you bought the spread bet at: 6016.0
- Profits (or losses) = (Settlement Price - Initial Price) x stake
- Profits (or losses) = (5972.4 - 6016.0) x £2 per point
- Profits (or losses) = -43.6 x £2 per point
- Profits (or losses) = -£87.20 loss
Please note that with a ‘Rolling Daily' financial spread bet if you ‘Roll' a bet over to the following day you could incur a charge or income for each day that the trade is held overnight.
(Financial spread betting prices correct as of 04-Mar-11)
Where to Financial Spread Bet
On SpreadBets.org.uk we aim to review most of the leading spread betting companies. There are direct links in the left-hand navigation to the latest reviews.
We also compare a wide range of services and markets offered by the various providers. For the full comparison across a wide range of markets see: spread betting company comparison.
Quick financial spread betting service comparison:
Spread Betting Account |
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| Candlestick Charts |
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| Stop Loss Available |
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| Stop Loss (Automatic) |
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| 24 Hour Trading |
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| FSA Authorised and Regulated |
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The above spread betting services / markets may also be available with other companies. Also see Comparison Table Notes.
Financial Spread Bet – The Guides
Apart from a range of spread betting companies reviews we also have a range of free guides:
Advert
Financial Spreads
Spread Betting - No Fees, No Commissions, Free Charts and Live Prices.
Spread Bet on Indices, Forex, Commodities, Shares and more. For details see Financial Spreads.
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"Financial Spread Bet" last update by R Thomas, 31-Jan-2012
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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