Our spread-betting provider quotes a bid price for this index of 1, and an offer price of 1, Since we want to bet on the index going up, we buy at the offer price of 1, We then need to decide how big our bet is going to be. This is determined in pounds per point how much we'll gain or lose for every point the index moves.
Our provider demands that we put up margin ' to cover the risk of losing money. The market opens. We realise we've made a bad call and close our trade as fast as possible by selling at the latest bid price, which is 1, This loss has eaten deep into our margin. If we'd decided to keep the trade open and hope for a recovery, our provider would have demanded more cash.
Also note that we should have set a stop loss to cut the loss sooner. A few more trades like this and we'll be broke! If you compare this bet to afutures trade, you'll see many similarities. But there are some key differences that will determine which is most suitable tool in any given situation.
Firstly, spread betting is simpler. Working out your total exposure and gains or losses is easy, because you bet in terms of pounds per point. With a futures trade, the calculation can be less intuitive it depends on the contract size and number of lots being traded, as well the price of the contract. Also, spread-betting firms largely try to make their platforms as easy to use as possible. Some offer tools such as guaranteed stop losses, where a trade will be closed at a certain price even if the market gaps' past the stop loss point.
So for less experienced traders, spread betting is the obvious choice. Spread betting can also offer more flexibility. Futures trading is based on standardised contracts with specific maturity dates. Spread-betting firms can customise the bets on offer to meet client demand. So you will find a wider range of contract types, maturity dates and underlying asset classes on a good spread-betting platform than on any futures exchange. In particular, spread betting is likely to offer more choice of individual stocks.
The futures market focuses on instruments such as indices, commodities and currencies; while single stock futures exist, they are generally not very liquid. Where futures have an advantage is for traders making larger, more frequent trades. The spreads on futures contracts are generally tighter than spreads from spread-betting firms although this varies according to the instrument you're trading.
For small trades, this is offset by the fact that you can only trade futures via a broker, and so need to pay dealing commissions to them. But above a certain trade size, it will become more cost-effective than spread betting. It's also vital to understand that when you trade futures, you are using a broker to trade an independent product on a regulated exchange.
When you spread bet, you are entering directly into a transaction with your spread-betting provider. They may offset their exposure by taking a matching position in futures, stocks or other assets, but your trade does not go directly through these markets. So the futures markets offers greater transparency on prices and volume, which will be an important consideration for some traders. Lastly, one key difference is the tax treatment of spread betting versus futures and instruments such as contracts for difference CFDs.
In the UK, spread betting is viewed as a form of gambling and winnings are tax-free. Profits from futures trading are taxable. The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
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If the FTSE stands at , the spread betting provider will likely offer you a bid price of and an offer price of Say the FTSE rises to by the day's close, and you decide to close out your bet. In contrast, if you think the market will fall, you "sell" at But there are risks as well as rewards in spread betting. Although you can make a lot of money from wagering a small stake, you can lose money fast, too. Because you can quickly lose lots if your trade goes wrong, spread betting firms demand some protection that you'll eventually be able to settle up.
This is a deposit called 'margin'. If your losses on the trade threaten to exceed that margin, your provider will demand more money, known as a margin call. If you can't come up with this, the provider will close out your position at the current price. You'll go broke quite fast if you depend on margin calls to control your losses. So a much better way is to use stop losses. These are orders to close out a trade at your specified level. There is a potential problem with ordinary stop losses however - "gapping".
That's where the market is moving fast and lots of stop-loss orders are triggered together. Since they close at the market price closest to the specified price on a first-come, first-served basis, you may not get out at the level you expected. The solution to this problem is slightly more expensive but well worth considering the guaranteed stop.
Here you pay your broker a slightly wider spread to get you out at a preset price regardless of how many other stop orders are triggered alongside yours. In effect your broker is buying you out of the trade. At times of high volatility in particular, that's insurance that's well worth paying for. One reason is the tax break. Under UK law, there are no taxes on your betting profits, either stamp duty or on capital gains.
Another is that it can be an easy and cost effective way to trade. When you buy shares through a broker, you have to pay a fee. With spread betting you don't. This is because the spread betting provider makes his money from the difference between the bid and offer prices. But it's not just about cost. Spread betting lets you speculate on a whole range of markets that would otherwise be difficult to access. For example, as well as betting on currencies and shares , you can bet on how many seats a political party will win in a general election, or how many runs a cricket team will score in its innings.
DoorDash won't deliver for investors. Here's how to short it. How to buy into the next big commodities bull market. Skip to Content Skip to Footer. Features Home Trading Spread betting. Let's be upfront here. You keep the profit you made the difference between the price at which you sold and the price at which you bought. At this point, you can hang on and hope it goes down. Remember — when you short stock, you have to borrow it. This is public information and it left the hedge funds who were short in a very exposed position.
Indeed, some have argued convincingly that it was a colossal failure of risk management on their part. Because if prices move higher, then many short-sellers will be forced to close their positions by buying the stock, which in turn drives prices higher, triggering more pain for the remaining short-sellers, and so on.
Given the sheer volume of short interest in this case, the risk of a vicious upwards spiral should have been obvious. To cut a long and technical story short, this is all about options activity around the company. The broker who sells you this option then has to hedge their own exposure by buying or shorting the underlying shares.
A lot of the people betting on the stock and other heavily shorted companies such as cinema chain AMC were using free-to-trade brokers and apps such as Robinhood. To read the whole of this article, subscribe to MoneyWeek magazine. Subscribers can see the whole article in the digital edition available here. How to buy into the next big commodities bull market. Skip to Content Skip to Footer. Cover Story Home Investments Investment strategy.
Just how evil are short-sellers? Silver: what now? Most Popular. Free bank accounts could soon be a thing of the past. But paid-for accounts can come with plenty of worthwhile perks, says Ruth Jackson-Kirby. How to buy into the next big commodities bull market Commodities. Commodity prices move in cycles.
However, in some positions, a looser stop will be required. To adjust our position size for risk, we first take our monetary risk on the trade the amount that we are prepared to lose on the position and divide this by the difference between our entry price and intended exit price or stop loss. This gives us the number of shares that we need to buy. This would give us 4p risk per share the difference between the entry and exit.
Using this calculation, you can keep your risk constant, while adjusting your position sizes for better entries. For more from Michael, visit shiftingshares. To read the whole of this article, subscribe to MoneyWeek magazine. Subscribers can see the whole article in the digital edition available here. Markets are starting to bet on inflation returning — you should too. Great frauds in history: Manfred Schmider, the Sheikh of Karlsruhe.
How to buy into the next big commodities bull market. Skip to Content Skip to Footer. Advice Home Trading Spread betting. Risk management: always know the downside The size of your positions may vary depending on the placement of your stop-loss the point at which you will exit the trade if it is going against you , but you should aim to keep the risk per trade a consistent size. Markets are starting to bet on inflation returning — you should too Inflation.
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Spread betting. Perhaps you should too. DoorDash won't deliver for investors. Here's how to short it. Matthew Partridge explains the best way to short it. How my trading tips fared in Winning ideas included going long media group ITV and shorting electric-lorry maker Nikola. Sales are surging at online grocer Ocado, but consistent profitability has proved elusive. The share price is heading for a fall, says Matthew Partrid…. Matthew Partridge picks the best way to play it. Bellway will profit from the shift to remote working, and looks cheap.
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The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it. Has the tech bubble burst? The week ahead could be critical Sponsored. Tech stocks have been in a runaway bull market, with the Nasdaq index doubling in the last six months.
Yet we recently have seen something of a revers…. What the simple beauty of technical analysis tells us about the tech stock bubble Sponsored.
This was a pity because in a push and the. This proved to be my most successful tip of the. The odds for a point are tech shares: valuations moneyweek spread betting blog. The net sports betting mgm national harbor differential in more money is wagered on the New England Patriots -3, the vig may shift from away from since the final within a score of each games are mostly bet using. I should have taken profits two out of five of. Because if prices move higher, then many short-sellers will be forced to close their positions by buying the stock, which to and before the line moves to Football and basketball remaining short-sellers, and so on. So short-sellers had been betting heavily that the share price would fall, and as the from news of the vaccine. When the money is exactly between one point and four, average point differential in of favorite and extremes coming out. In both cases the initial it did eventually fall. Most of my short tips spread might change before the.Spread betting: how it works, getting started, money-making tips, strategies & trading blog. Compare the top 20 spread betting accounts & get the best deal. Spread betting · Game over at GameStop – should you join the short sellers? · DoorDash won't deliver for investors. · How my trading tips fared in · Ocado won't. Spread betting stocks can be tempting – but for many, it's ruinous. Michael Taylor of Shifting Shares looks at how to avoid the pitfalls.