Spread Betting on UK and US Stocks

Q. Suppose I place a bet at +100 point on PartyGaming when this was trading at 201 - what would be the equivalent holding in shares?

Suppose I place a bet at +100 point on PartyGaming when this was trading at 201 - what would be the equivalent holding in shares (to get the same risk/reward)? Also, I believe that for UK shares a point is defined as a pence amount - is this treated differently for American shares?

A: Buying £100 per point of PartyGaming is the equivalant of 10,000 shares. To get the equivalent share value you need to add 2 zeros to your stake.

You are correct, in terms of UK shares a 1 pip movement is the equivalant of a 1 pence movement. This will always be the figure before the decimal point. With regards to American shares a 1 pip movement is the equivalant of a 1 cent movement, and again is always the figure before the decimal place.

Inexperienced spread betters often underestimate the true financial value of position sizes be it shares or forex. But they should be reminded that a £1 bet on £/USD is the equivalent of taking out a position of around £19,200 (if the price at about 1.9200)!

Q. Show me some examples of spread bets with USA shares...

A: Ok here goes -:

Example 1: Buying the daily Apple

Suppose that it is 2nd February and Apple (AAPL) is trading at 14752, (which is USD147.42).

You check the spread betting company's price which displays the underlying market, and it is 14748 - 14754.

This is a spread of 6 points.

This is a Daily Bet so will expire at the end of the trading day so it is suitable for a trader looking for an intraday movement in the stock.

14748 is the sell/bid price, and 14754 is the buy/offer price.

You decide to buy at £5 per point at 14754.

You will be making £5 for every point that Apple rises above 14754, and lose £1 for every point the price falls below 14754.

Over the course of the trading day, Apple rises to 14780, and you decide to sell your position and take profit -:

You sold at: 14780
You bought at: 14754
Number of points profit: 26
26pts profit x £5 per point: £130 gain

Example 2: Selling the daily Microsoft

Microsoft is quoted 2444 - 2449.

After performing your analysis, you feel Microsoft is going to fall, and you decided to place a spread bet, selling Microsoft.

You sell at £4 per point at 2444.

After a few hours, Microsoft rises to 2470, hitting your stop loss.

Your lose £104, which was the risk you were comfortable with when you placed the trade.

Q. I can't seem to understand how betting on US stocks works - I want to bet on Google!

For instance suppose google stock is quoted at 41477 - 41497 but the real price of google is around 414.77. What does this mean in practice? Suppose I wanted to bet for each dollar gain in google how would I go around it? What does a quote of 41477 - 41497 mean - it seems that I can easily dangerously overgear myself if I'm not careful and this is a bit off-putting. If I wanted exposure of $10,000 worth of stock what would be the equivalent spread bet to get this exposure? And lastly am I exposed to the USD/£ currency exchange rate if my base account is denominated in sterling?

A: The two prices quoted are the bid and the offer. The offer is the price at which you can buy the stock and the bid is the price you can sell the stock at. The actual share price of Google would be between the two prices. As some countries have a way of quoting prices which is different to others spread betting providers have adopted the policy of quoting the price as a whole number and not splitting the pence or cents up with a decimal point.

Hence Vodafone is shown as 134.0 / 134.3 which actually represents £1.34 / £1.343.

With Google in your example the actual price is $414.77 / $414.97. But as you rightly point out it is a very volatile stock, so to accentuate this spread betting firms not show the decimal. This shows that you are actually trading on a very large number.

Google trades per cent movement so if you wanted to trade per dollar movement that is the equivalent of a 100 tick movement. So if Google went from 414.77 to 414.78 that is the equivalent of a one point movement. The size of the movement is multiplied by your stake per point to calculate your profit or loss.

A point in Google is 0.01 so if you bet £1 a point and bought it at 414.97 and then sold it at 415.20 that would be 0.23 x £1 = £23 profit. If you bought it and it went down, selling it at 414.50 you would lose 0.47 or £47.

'Google stock is quoted at 41477 - 41497 but the real price of Google is around 414.77'.

In the market if Google rolling spread bet was at say 41477 - 41497 you would find the Google price in the stock market should be at around 41488. The spread for rolling contracts is based around the cash market price.

'$10,000 worth of Google stock what would be the equivalent spread bet to get this exposure?'

To work out your exposure to a stock is a simple calculation. It is the Buy price * the stake you choose. If we take a minimum stake of £1 sterling * 41497 your overall exposure will be 41,497 sterling worth of the stock, or about just over 70,000 dollars worth. As you can see with large value stocks like google your exposure gets quite high, however the leverage is still only about 6.6 times. Therefore you would be required to have about 6287 sterling in your account to place a £1 sterling. If you wanted to achieve £10,000 dollar exposure this would be the equivalent of a 24 cent per point stake.

Usually, the price that spread betting providers quote for US single shares is quoted in cents so each £1 a point you bet is effectively per cent movement. However, as Google is such a large stock some providers like ETX Capital have created a 10 cent Google contract. So instead of 1 point equalling 1 cent, 10 cents equals 1 point so the contract size is 10 times smaller, thus reducing your exposure. A buy bet of £1 a point on ETX Capital's 10 Cent Google contract based on a price of 414.97 would expose you to approximately $7250 of the value of the stock (1 x 4147 x 1.75 exchange rate).

Note: If you wanted $10,000 worth of stock this equates to 24 shares (i.e. 24 shares at $415 per share is approx $10,000). When you know the number of shares you have to simply divide it by 100 to give you the bet per point...so 24/100 = 0.24 dollars or about 13 pence. Another way to work out your bet per is very simply divide the amount you have by the whole number the provider shows...i.e. 10,000/41497 = 0.24...this is in dollars as the amount you had was in dollars.

'Am I exposed to the USD/£ currency exchange rate if my base account is denominated in sterling?'

No, you never have any currency exposure unless you are trading the currency itself. The bets are always placed in your base currency. So if your stake is in £ your profits and losses are also realised in £ effectively meaning that your £/$ position will have no exposure to forex rates. Most people just trade in pounds to keep things simple.

Really, I would suggest you to open a simulated trading account where you can trade with dummy money. Buy, sell, do anything and everything not so much to money but to understand how things work and get a feel for the platform. Making mistakes at this point is a plus because you learn more from these.

Ayondo: offer a handy simulator. Ayondo are a great firm, offering nice tight spreads.

Then, after a month pay in say £500 in cash and spread bet for real but with tiniest allowable stakes. Remember virtual trading is a good way to sharpen your skills before parting with any real money but there is nothing quite like making real losses or gains (even small ones) - paper trading lacks the pressure that comes with real trades. And don't scale up from there too soon, no matter how impatient you are to move up - wait until you've turned your token starting amount into your target amount - and then do that exercise again at the same tiny stake, to find if it was a fluke! If you jump in at the deep end without really knowing what you're doing with spread bets then you are drastically increasing your chances of failure. Trading is a game of snakes and ladders in which some of the snakes are invisible ;o)

Q. I am mainly interested in trading the U.S markets, are there any substantial differences between the USA and UK markets?

A:If you're spread betting, there are no real differences. What suits you best will depend on the time-frames you can trade and the knowledge you have of the market/industry/company you planning to trade. For instance if you follow European economic news, it makes better sense to trade a european index than an Asian one. Or maybe the Japanese markets might be better if you can't trade during the day because of your day-job.

Q. Please help me work out my exposure/leverage for each of my positions below...

SOCO Sept Contract: £10/point (current sell price 2041.2)
Tesco Sept contract: £285/point (current sell price 423.3)
Gold August Comex: £300/point (current sell price 655.1)

A: My advice - you really should NEVER open a position if you are not aware of the exposure you have!

SOCO Sept Contract: £10/point (current sell price 2041.2)

Exposure of £20,412

Tesco Sept contract: £285/point (current sell price 423.3)

Exposure of £120,640.50

Gold August Comex: £300/point (current sell price 655.1)

Assuming 'a point' is one unit where 655 is 655 units.

Exposure of £196,530.

Q. Suppose I were to buy 20 points of Betsson at 185 SEK - what would be the equivalent holding in shares?

1.) if I were to buy £20 per point through IG Index (spread betting)?
2.) if I were to buy the equivalent of 2000 shares CFDs through IG Markets (CFDs)?

A: Ok let's take IG Index:

First of all you need to take into account that the market price for IG Markets and the daily price for IG Index is different as the IG Index price has a spread wrapped around it whereas the IG Markets price has not. IG Index offers daily and futures prices for the shares and therefore has an expiry date and time. IG Markets positions do not expire.

For IG Index, the price at this present moment for Betsson (a stock listed on the Swedish stock exchange and thereby quoted in Swiss Franks) is 18504/18647.

If you are going long SEK 20/pt, this is equal to 2,000 shares and therefore the exposure is SEK 372,940. The margin required for this position is SEK 130,529 (amount/pt x deposit factor which is 35%). This is also with no stop attached.

If you are going long £ 20/pt, this is approximaley equal to SEK 240 and therefore equal to 24,000 shares. Therefore, with the price at 18504/18647, the exposure is SEK 4,475,280.

For IG Markets, the cash price at this present moment for Betsson is 18550/18600. If you are trading 2,000 shares CFDs (as opposed to spread betting) and you are going long, the exposure is SEK 372,000. The margin required is SEK 130,200 (35% of contract value). This is with no stop attached to the position.

Note that for IG Markets, commission is charged on both the opening and the closing of the position and if the position is held overnight, a daily interest adjustment will be applied to your account. On release of a dividend, your account will still be adjusted.

 ...Continues here - Questions about Rollovers, Quarterlies and More

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