Spread betting for dummies
Discussion
Say I see a share I'm confident is going to go up. It is priced at 300p in the market at the moment, can I "buy" it at 290p with £1000, therefore giving me 10,000 deltas. If it then goes up to 350p, I make £5000. I can put some kind of auto-limiter so that if the shares fall belw 290p I just lose the £1k I've put in.
The period with the spread bet is when it is valid until; what happens at the end of this period? Can I get out before the end of the period?
Is that it in a nutshell?
The period with the spread bet is when it is valid until; what happens at the end of this period? Can I get out before the end of the period?
Is that it in a nutshell?
If the market is quoting 300p, you haven't got the power to buy it at 290p. Otherwise i'd buy it at 290p and sell it at 300p all day long! Unless you wait for the market to quote you at 290p you won't be able to open the position at this price.
You lost me with the deltas....If you have £1000, and the price is 300p. That means you can open a position equal to 333.3333333 shares. Or a 1p movement equates to a £3.33 gain/loss. If it goes up 50p you're not going to make £5000. To get such a rate of return you're going to have to be highly leveraged (much more than £1000) unless you decide to place a very tight margin for error in your trade.
However, if you place a stop loss at 290p and you buy at 300p using your £1000 you're effectively paying £100 / point. So if it goes up 50 as you say, you'll make £5000 gross (-spread and commission). A word of warning though, if something bad happens such as a profit warning, or the company gets its shares suspended your order may not trigger at the level you requested and you may end up losing more than you first planned. A guaranteed stop loss is a way around this, but there's a premium to pay for the pleasure.
Are you sure this is really for you though? To punt £1000 with such tight margin for error ~3.3% is highly risky. If a bill for £30,000 landed through your door is that something you can easily pay?
You lost me with the deltas....If you have £1000, and the price is 300p. That means you can open a position equal to 333.3333333 shares. Or a 1p movement equates to a £3.33 gain/loss. If it goes up 50p you're not going to make £5000. To get such a rate of return you're going to have to be highly leveraged (much more than £1000) unless you decide to place a very tight margin for error in your trade.
However, if you place a stop loss at 290p and you buy at 300p using your £1000 you're effectively paying £100 / point. So if it goes up 50 as you say, you'll make £5000 gross (-spread and commission). A word of warning though, if something bad happens such as a profit warning, or the company gets its shares suspended your order may not trigger at the level you requested and you may end up losing more than you first planned. A guaranteed stop loss is a way around this, but there's a premium to pay for the pleasure.
Are you sure this is really for you though? To punt £1000 with such tight margin for error ~3.3% is highly risky. If a bill for £30,000 landed through your door is that something you can easily pay?
Edited by g4ry13 on Tuesday 4th December 00:32
Disclaimer: I've never spread betted in my life. The only time I even tried I opened up a demo account and forgot about it (while doing 'real' trading) and wiped out the full 20 grand in a day by going short on the bund during a rally... So the following could be nonsense
Basically these guys will act like a rubbish market maker, quoting a bid and an offer price much wider than in the real market, and you can hit their offer at a certain price per point, but you will need a certain level of margin to do this. I have no idea how much margin you would need for £100 per point but I would be *very* surprised if it were only £1000. In any case, because of the spread, you will be losing money straight away when you put the money in... IE if spread is x points then the share only has to move 10-x points against you for you to lose all the money. I also know that the spread is worse with guaranteed stops, which you presumably want.
Basically these guys will act like a rubbish market maker, quoting a bid and an offer price much wider than in the real market, and you can hit their offer at a certain price per point, but you will need a certain level of margin to do this. I have no idea how much margin you would need for £100 per point but I would be *very* surprised if it were only £1000. In any case, because of the spread, you will be losing money straight away when you put the money in... IE if spread is x points then the share only has to move 10-x points against you for you to lose all the money. I also know that the spread is worse with guaranteed stops, which you presumably want.
Take a look around ig index or similar, but beware, the prices mirror the real prices, but they are made up and quite often there can be a delay in them being updated, ahem...
It's a quick way to lose money but as you've indicated a quick way to gain money as well.. It just depends on how lucky or good you are at it.
You can bet - and that's what it is, on the day, so you can choose to close it out at any point during the day. Others offer weekly/monthly/quarterly ends.. of course they are weighted, so that they are in favour of the system.. and there's the spread to contend with..
i.e. 9.5 to sell 10.5 to buy, real share price is 9.75 and 10.25... You buy, SP ticks up.. you get 9.8 to sell and 10.3 to buy.. so you still can't sell at a profit... You have to wait for a 3/4 to 1 increase before getting to a marginal positive point and even then there's commission to take out (probably!) or CC charges/whatever.. Of course the system also knows how much is in there and what its placed on, ahem..
Most systems will want you to have about 4:1 cover on funds anyway, so 100 per point would mean having 400 in the account.. or thereabouts..
SP can go up or down (of course!)
A little shake can either mean that you need to get out, or put more in... or is it going down..? It just needs an interest hike here or in the US and things will ripple..
If you have a Jan ending SP, you can (for a fee of course!) roll it over to the next quarter..
Most of this is from the ig index perspective, other systems may differ - you don't indicate which system you were interested in.
HTH
It's a quick way to lose money but as you've indicated a quick way to gain money as well.. It just depends on how lucky or good you are at it.
You can bet - and that's what it is, on the day, so you can choose to close it out at any point during the day. Others offer weekly/monthly/quarterly ends.. of course they are weighted, so that they are in favour of the system.. and there's the spread to contend with..
i.e. 9.5 to sell 10.5 to buy, real share price is 9.75 and 10.25... You buy, SP ticks up.. you get 9.8 to sell and 10.3 to buy.. so you still can't sell at a profit... You have to wait for a 3/4 to 1 increase before getting to a marginal positive point and even then there's commission to take out (probably!) or CC charges/whatever.. Of course the system also knows how much is in there and what its placed on, ahem..
Most systems will want you to have about 4:1 cover on funds anyway, so 100 per point would mean having 400 in the account.. or thereabouts..
SP can go up or down (of course!)
A little shake can either mean that you need to get out, or put more in... or is it going down..? It just needs an interest hike here or in the US and things will ripple..
If you have a Jan ending SP, you can (for a fee of course!) roll it over to the next quarter..
Most of this is from the ig index perspective, other systems may differ - you don't indicate which system you were interested in.
HTH
Short answer is no. Long answer is no because of a number of things:
1) with 1000 GBP in, you won't have any where near enough on margin to go 100 GBP a point. Initial Margin Required will depend on the market you're trading (check each company's market information sheets for details). If it's an obscure market, you may not even get a price straight away.
2) as soon as you trade, you'll be marked to market, so if you're trading at 100 pounds a point, and the spread is anywhere near 10 points, you're out before you've even got in.
3) you will be able to put a stop loss in, but often, you can't put these too close to (or far away from) the market, depending on the account type. Also, if the stop isn't guaranteed (which you'll pay for), the market may gap through, and you'll end up owing more than you expected.
4) I'm not sure I believe all the things I hear about prices being duff - so long as you realise you're not actually trading the real market, and you're trading a 'made' derivative, I think they're on the whole pretty reliable.
Basically, you'll get a bet on, but not with the gearing you're asking for, and not with the precision you'd like. Depending on your initial deposit, stop loss parameters and what the market is though, with more money, what you're asking is possible, but there's potential risk to the downside which you can remove by paying for a guaranteed stop.
Hope that helps?
1) with 1000 GBP in, you won't have any where near enough on margin to go 100 GBP a point. Initial Margin Required will depend on the market you're trading (check each company's market information sheets for details). If it's an obscure market, you may not even get a price straight away.
2) as soon as you trade, you'll be marked to market, so if you're trading at 100 pounds a point, and the spread is anywhere near 10 points, you're out before you've even got in.
3) you will be able to put a stop loss in, but often, you can't put these too close to (or far away from) the market, depending on the account type. Also, if the stop isn't guaranteed (which you'll pay for), the market may gap through, and you'll end up owing more than you expected.
4) I'm not sure I believe all the things I hear about prices being duff - so long as you realise you're not actually trading the real market, and you're trading a 'made' derivative, I think they're on the whole pretty reliable.
Basically, you'll get a bet on, but not with the gearing you're asking for, and not with the precision you'd like. Depending on your initial deposit, stop loss parameters and what the market is though, with more money, what you're asking is possible, but there's potential risk to the downside which you can remove by paying for a guaranteed stop.
Hope that helps?
Retard said:
You might want to look into CFDs as an alternative
There's no benefit to them over spread-betting and CFDs are open to Capital gains tax. As a side note, the prices are pretty much a true reflection of what the market is doing. Otherwise, everyone who had their up to the minute data using Level 2 and other sources would take advantage of the time lag.g4ry13 said:
Retard said:
You might want to look into CFDs as an alternative
There's no benefit to them over spread-betting and CFDs are open to Capital gains tax. As a side note, the prices are pretty much a true reflection of what the market is doing. Otherwise, everyone who had their up to the minute data using Level 2 and other sources would take advantage of the time lag.Hm.
If you want to risk £1000, you do it like so: you set a stop 10 points away so you can bet £100 per point. Or you set a stop 1000 points away and bet £1 per point. Or any variation of stop loss distance and points in between those extremes. The amount you can bet is determined by your stoploss distance from the price. I would avoid going too tight as this means you get wiped out by noise.
Example: Current price for ABC Plc is 100p. You think it's going to rise. You set a stop of 10 points, so if you wanted to risk £1000 you can bet £100 per point. It rises 5 points. You close the position and gain £500. Alternative scenario: it falls 10 points, hits your stop, you lose £1000 (you can close early and take a smaller loss if you think you made the wrong decision). (This ignores the spread so you have to add/minus a couple of points depending on which way it goes.)
If you want to risk £1000, you do it like so: you set a stop 10 points away so you can bet £100 per point. Or you set a stop 1000 points away and bet £1 per point. Or any variation of stop loss distance and points in between those extremes. The amount you can bet is determined by your stoploss distance from the price. I would avoid going too tight as this means you get wiped out by noise.
Example: Current price for ABC Plc is 100p. You think it's going to rise. You set a stop of 10 points, so if you wanted to risk £1000 you can bet £100 per point. It rises 5 points. You close the position and gain £500. Alternative scenario: it falls 10 points, hits your stop, you lose £1000 (you can close early and take a smaller loss if you think you made the wrong decision). (This ignores the spread so you have to add/minus a couple of points depending on which way it goes.)
Out of interest what shares are you looking at? Why not just allow yourself a 10% downward movement before you get stopped out? With your position you could be out in a day. The returns won't be as great, but it's "safer". Otherwise it just becomes a pure gamble and you may as well go to the bookies.
edb49 said:
I'm looking at shares of companies I know well; e.g. they trade in the same-ish industry as we do, and I have a good idea of how profitable their next set of results will be.
Sounds all above board then 
Just because you may know something others don't, their movements will affect you regardless. So you could be anticipating good results and when they're released the stock could soar 10% on the day. But just the day or even few minutes before results are announced, everyone could be expecting the results to not be good and mark the stock down and at this point you could get stopped out - only to find had you been more liberal with your stop loss you would have made a profit.
g4ry13 said:
Fittster said:
If you search this forum, you will find an extensive thread about spread betting. The fact that has gone quite suggests they have lost all their cash.
I think you'll find it was binary betting. 
Is that still going on or did it end as I suspect?
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