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Financial Spread Betting
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A guide to financial spread betting with a look at the pros and cons, the financial spread betting companies, reducing your risk, trading orders, market commentary and how to trade.
Financial Spread Betting
Financial spread betting is an increasingly common tool for speculating on the markets. Spread betting comes with a number of important characteristics and benefits that make it a convenient way of trading. Advantages include:
- The ability to speculate across an extensive range global markets. Many spread betting providers offer countless markets which normally include stock market indices, stocks and shares, foreign exchange, commodities, bonds and interest rates.
- Financial spread betting is tax free*, there is no capital gains tax, no income tax and no stamp duty to pay on spread bets.
- You can go long (ie buy) or short (ie sell) of a market. This means that you're able to make a profit with markets which are falling or rising.
- Financial spread betting is commission-free and there are no brokers’ fees (the spread betting companies’ fees are built into the prices).
- You can trade via mobile phone applications, online and over the phone.
- The vast majority of new trades are processed automatically, or at least within a matter of seconds.
- When the closing bell sounds, not all financial spread betting markets will close. Whilst the New York, Frankfurt and London stock exchanges may close many important markets remain open. Companies like Financial Spreads offer 24 hour trading, 5 days a week on key markets like the FTSE 100, EUR/USD, gold and crude oil. Note that with 24 hour trading, out-of-hours pricing may be applied, ie the spreads will sometimes be wider.
- Spread betting certainly has it’s risks (see below) but there are a few steps you can take to limit your potential losses. One example is that you can add a Stop Loss to your trades. If a market moves against your position then the Stop Loss will close your spread bet and prevent you from losing any more money. Note that not all Stop Losses are guaranteed. Also see financial spread betting orders.
- Some of the spread betting firms have started to provide free financial data for their clients. The data available can vary; however, it can often include Events Calendars, Market Heat Maps, Technical Analysis and Company Specific Data.
Financial Spread Betting Companies
In the table below we have listed some of the largest financial spread betting companies.
How do you know which spread betting company is right for you?
Rather than give you a list of spread betting companies, here are a few suggestions on what you might look for when choosing a company to trade with.
Many UK investors pick a firm that is authorised and regulated by the Financial Services Authority (FSA), this means client funds are segregated from “the company’s funds” and that the investor is protected by the Financial Service Compensation Scheme should the company in question go bankrupt.
Note that whilst you do not pay direct commissions with spread betting, many investors often don’t realise that the firm’s fee or commission is built into the spread/pricing.
The smaller the spreads offered by the firm in question, the lower your trading costs. Note that it has become quite a competitive market and a number of operators, like Financial Spreads, now offer spreads as low as 1 point on the FTSE 100 index, DAX 30, EUR/GBP, EUR/USD and USD/JPY. For a price comparison see spread betting comparison.
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Note that most firms listed on this site offer a broad selection of financial instruments including forex, many UK and international shares, stock market indices and commodities. For more details see: spread betting companies.
If you are less familiar with spread betting then choosing a firm that offers demo accounts can be helpful. Demo accounts are free accounts, with virtual funds, where you can practice trading the markets, try trading orders etc.
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| Spread Betting Company Review |
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| New Account Offer? |
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| Trading Charts? |
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| 24 Hour Spread Betting? |
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| Stop Losses Available? |
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| Guaranteed Stop Available? |
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| Demo Account? |
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| Regulated by? |
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Spread betting services may also be available from other companies. Notes.
For individual financial spread betting company reviews also see:
Financial Spread Betting Risks
Financial spread betting is a leveraged form of investment, it carries a high level of risk to your capital and can result in losses that are greater than your initial investment.
Please ensure that financial spread betting fits your investment needs as it might not be appropriate for all classes of investor.
Before you start trading, make sure you fully appreciate the risk involved. Make sure that you only spread bet with funds that you can afford to lose.
Where you feel it is required, seek independent advice.
Financial Spread Betting Guides and News
Each day Spread-Betting.org offers the latest views and news on the markets, with different articles focusing on areas such as the forex market, UK share tips, technical analysis, market data etc. For the latest views and opinions on the markets see:
Financial Spread Betting Markets
Spread-Betting.org offers hundreds of spread betting guides on individual markets. Each spread betting guide comes with detailed trading examples, where to find charts, which companies offer which markets etc. For more information see:
Financial Spread Betting Orders
Spread betting can be risky and therefore, much like all your investing, only trade with money you can afford to lose.
To help you manage your risk, spread betting companies normally let you use a number of trading orders, the more widely used orders are:
- Stop Loss
- Guaranteed Stop
- Limit Order
Stop Loss - a Stop Loss is a trading order designed to help an investor if they are losing money on a trade. A Stop Loss order can close and settle your trade if the underlying market moves against your position and through a certain level. You can generally state the level that the order is set at.
Be aware that Stop Loss orders aren't completely guaranteed, in the event that the market ‘gaps’ or jumps across the price level you set your Stop Loss at, then your trade will be closed at the next traded price.
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Guaranteed Stop - a Guaranteed Stop order works just like a standard Stop Loss however the closing price level of your financial spread bet is guaranteed. So even if the underlying financial instrument you are trading gaps over the level of your Guaranteed Stop, your spread bet will still be closed at the price you selected.
Keep in mind that if you want to add a Guaranteed Stop to a trade, there is generally a small premium for this extra insurance and, generally, it is a marginally larger spread/price.
Both types of Stop order are important considering the fact that spread betting is leveraged and comes with a high level of risk. These orders help to lessen any unwanted shocks.
Limit Order – a Limit order is designed to assist you if you're making a profit on your trade. A Limit order would close your spread bet if and when the market you are trading moves in the way that you successfully forecast and through a certain price level. In most instances you'll be able to state the level at which your Limit order is set.
Put simply, Limit orders will close and settle your trade to lock in your profit. A good number of traders always use Limits because they can help to prevent you from getting carried away and not closing your trade according to your plan.
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| Stop Losses Available? |
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| Guaranteed Stop Available? |
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Stop orders may also be available from other companies. Notes.
Reducing Your Financial Spread Betting Risk
It doesn’t matter whether you are using CFDs, spread bets or investing in stocks and shares, you can lose money on your investment.
With spread betting there are two simple ways of reducing your risk:
- Small Stakes
- Stop Losses / Guaranteed Stop Losses
Small Stakes - with most spread betting companies you can trade with smaller stakes such as £1 per point.
To gain a little exposure you could just trade the UK, US or German stock market indices, ie speculate on whether the FTSE 100, Dow Jones or DAX 30 etc will rise or fall.
If you speculate on the FTSE 100 to go up, with a £4 per point stake, and it goes up by 60 points then you would make 60 points x £4 per point = £240.
Of course the market could go against you and rather than going up by 60 points it might drop by 75 points. So with your £4 stake you would lose 75 points x £4 per point = £300.
Note that you can trade the markets in Dollars, Sterling or Euros. If you want to trade in Dollars then 60 points x $4 per point = $240.
Stop Losses / Guaranteed Stop Losses - naturally all investors want to reduce their losses and, as discussed above, with financial spread betting you can limit your losses without impacting your upside.
With online spread betting companies like CMC Markets and FinancialSpreads.com you can add a Guaranteed Stop at let's say, 45 points.
If you were betting on the FTSE 100 then your bet would be closed if the FTSE 100 moved against you by 45 points. Therefore, instead of losing £300, you'd only lose 45 points x £4 per point = £180.
In addition, if you had correctly predicted the market direction then your upside would still be £240 if it moved 60 points or £400 if the FTSE 100 moved up by 100 points.
So what is the catch? As discussed previously, there are risks. Nevertheless, perhaps we should talk through how a trade works in more depth.
Financial Spread Betting - Worked Example
A popular market with many spread bettors is the EUR/USD exchange rate. Looking at a site like Capital Spreads, you might find a price of $1.42767 - $1.42777.
Therefore, you could bet on EUR/USD to:
- Go higher than $1.42767, or
- Go lower than $1.42777.
When spread betting, you trade on every unit the market goes up or down. In the case of the EUR/USD market a unit is $0.00010 of the forex pair's price movement.
In this case, you might choose to spread bet £2 for every $0.00010 the EUR/USD rises or falls.
Financial Spread Betting on EUR/USD to Rise
If you were to buy the EUR/USD at $1.42777 and the forex pair went up then the market might be re-priced at $1.43205 - $1.43215. In that case, you could decide to take your profits by closing your trade at $1.43205.
P&L = (final price of the market - opening value of the market) x stake per $0.00010
P&L = ($1.43205 - $1.42777) x £2 per $0.00010 stake
P&L = $0.00428 x £2 per $0.00010
P&L = £85.60 profit
Financial markets also move down, if the market had moved down to $1.42277 - $1.42287, you could choose to close your trade to prevent further losses. If this were the case, you would sell your spread bet at $1.42277.
With the same £2 per $0.00010 stake:
P&L = (final price of the market - opening value of the market) x stake per $0.00010
P&L = ($1.42277 - $1.42777) x £2 per $0.00010 stake
P&L = -$0.00500 x £2 per $0.00010
P&L = -£100.00 loss
Financial Spread Betting on EUR/USD to Fall
A major advantage of financial spread betting is that you can ‘short’ a market, ie speculate on it to fall.
When we began this example, the market was priced at $1.42767 - $1.42777.
If you were to go short of the EUR/USD at $1.42767 and the forex pair fell then the market might be re-priced at $1.42372 - $1.42382. Assuming this was the case, you might decide to close your spread bet for a profit at $1.42382.
P&L = (opening value of the market - final price of the market) x stake per $0.00010
P&L = ($1.42767 - $1.42382) x £2 per $0.00010 stake
P&L = $0.00385 x £2 per $0.00010
P&L = £77.00 profit
Of course, if the market had moved against your position and risen to $1.43207 - $1.43217, you might decide to close your trade to limit your losses. If that happened, you would buy the market at $1.43217.
So, with the same £2 per $0.00010 stake:
P&L = (opening value of the market - final price of the market) x stake per $0.00010
P&L = ($1.42767 - $1.43217) x £2 per $0.00010 stake
P&L = -$0.00450 x £2 per $0.00010
P&L = -£90.00 loss
EUR/USD Rolling Daily spread betting market correct as of 01-Sep-11.
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Financial Spreads - tax free* trading on over 2,500 spread betting markets. With a Financial Spreads Account you can trade commission free, 24 hours a day on stock market indices, forex, shares commodities and...read review » Financial Spreads.
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With financial spread betting you can lose more than your original stake or investment. Spread betting carries a high level of risk to your capital. Please familiarise yourself with the risks that are involved and before trading, ensure that financial spread betting matches your investment objectives. Seek independent advice where necessary.
Financial Spread Betting - edited by D. Jones, 23 May 2013.
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With spread betting you can lose more than your original stake or investment. Spread betting carries a high level of risk to your capital so please familiarise yourself with the risks that are involved and, before trading, ensure that spread betting matches your investment objectives. Seek independent advice where necessary.
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* Based on current UK tax law. Tax law may change and can differ depending on your personal circumstances.
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