Spread betting has become popular recently in the UK, and with good reason. It offers a way to trade in the financial markets without getting involved with share ownership, stamp duty, or even capital gains tax. With its simplicity, you can quickly understand exactly what conditions will give you a winning position, and what conditions will lead to a loss.
If you want to BUY, you would enter the position at the buy price. In this example, it’s 5136.5.
If you want to SELL, you would enter the position at the sell price. In this example, it’s 5135.5.
The STAKE is how many pounds you bet per point the market moves. For example, a stake of 1 means for every point the market moves in your favour, you make £1. (And conversely, if it moves against you, you lose £1.) If your stake was 10, you would gain (or lose) £10 per point.
The range of financial securities on which you can take out spread bets is extensive, and covers the conventional investment and trading markets, including stocks, currencies and commodities. One of the popular ideas is to trade on a published market index, such as the FTSE 100, the Dow Jones Industrial Average (DJIA), the S&P 500, the DAX 30 and several others. Despite the fact that these are not all UK indices, there is no problem trading on them all in pounds sterling because of the way spread betting works.
Out of all the spread betting choices, index spread betting is one of the most common as it is based on readily understood and much publicized numbers that reflect economic health in various parts of the world. Many people think that they comprehend how economies are shaping up, and hence can predict the future path of indices.
In its basic form, index spread betting is betting on the future of the index, and whether it is going to go up or down. With a good insight into this, spread betting gives high gearing or leverage of your money and the possibility of high profits. The corollary is that a losing position can involve losing more than your original account, so it pays to learn more about the market before trading on your instincts.
Depending on your spread betting company’s minimum, you may be able to bet as little as £1 per point that the index moves. The spread is the difference between the price you can buy and sell at, and is the way that the dealer makes a profit and can afford to operate without charging you additional commissions.
As an example, say that you were interested in spread betting on the FTSE 100. Your spread betting company, basically a bookmaker, might quote you a price of 5148/5150. These are the bid (selling) price and the offer (buying) price. If you think the FTSE is going up, you would buy at 5150, and might stake £5 per point. Right now, i.e. immediately after buying the spreadbet, note that you could close the position, or sell, but the selling price is only 5148 so you would lose money – 2 points times your bet of £5 is £10. That represents the company’s profit margin.
Suppose later that day the quote is 5175/5177, an increase of 27 points. You decide to close your position, which you can do at the lower number of 5175, giving you a 25 point gain, which at £5 per point is £125. If instead the FTSE lost 27 points, your loss would be 29 points because of the spread so you would owe £145 to the broker.
Find out how to make the most of macro market movements trading Index Spreads with Capital Spreads. Trade the biggest range of top markets with narrow spreads. Trade the FTSE, DAX and EUR/USD all using 0.5% margin, one point spreads and no commission. With market information easily accessible on global indices, everyone has an opinion on market movements!
Trading Indices for a Living?
Trading the markets can be a fantastic way of making money and many spread traders dream of doing so for a living. But I wouldn’t want to attempt to spread trade the indices for a living. They are too random and there are many other ways to speculate (financial markets or others). I do still spread trade them but I do so mostly for fun although I wouldn’t like to think of it as pure gambling. It is all about leverage and spread and noise and I have to admit trading indices is hard.
Trading the indices is very random, good positioning and proper leverage is a must in this environment, I find it amazing that some traders profess that they ignore the news. The markets are completely news and sentiment driven and if these same people said that on a trading floor they would be laughed out the door.
As for spread trading indices just imagine you’re trying to cross a road. To get all technical about it, crossing a road means that you are trying to find a hold in a four-dimensional space through a line of steel in the real big bad world (chaotic ~ no laws with no guarantees – have you remembered to look up for that falling piece of plane wreckage?!). Now, suppose you’re trying to make up your mind and there’s a cheeky, ronald-macdonald type, standing along-side you, shouting ‘don’t cross now – bet you don’t make it – now! cross now! ” -if you listen to this, do you really think it improves your possibilities of getting to the other side?
These days, I only trade in my spare time without any pressure. To be successful in this game you need to practice patience and limit risk as far as possible though the use of small stops and timely entries. For myself the sooner I buy and sell the better, it isn’t important if I make nothing, the markets will still be there next month and I’m doing it in my extra time so I can afford to be patient. This way it’s a bit like fishing; I get a hundred sprats but every so often I hook a marlin 😉
I am a beginner – how can I learn more about the Dow Jones?
The Dow Jones is a popular index which provides a weighted average of the performance of 30 leading stocks listed on the NYSE [New York Stock Exchange] and Nasdaq. Movements in the Dow Jones index can be traded, with net pound profits for every point move in the Dow.
My next index play is long and I plan to immediately short the inevitable first bounce…..we’ll see how it goes.
If you’re reading this, then you and I know one thing for certain…you want more from your trading. Maybe you’re looking for more consistency in your profits. Maybe you want to take trading to the next level and treat it as a business…or go from part-time to full-time. Maybe you’ve experienced occasional drawdowns that you know were avoidable and you want help making your trading more robust.
No matter why you’re unhappy with your results, we can help (unless you’re just trying to figure out how to ‘play the big one’ and end up rich overnight…our approach is much more realistic).
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gives them a more serious business plan.”