A: There is not really a fixed amount; you can open a spread betting account for as little as £100 if you wanted to! However, in practice you really need a few thousands as otherwise you won't really have any margin for error and won't be able to diversify your exposure across different industries/asset classes [three of the top mistakes new traders tend to make are undercapitalization, unrealistic expectations and lack of diversification (putting everything in one stock or asset class)].
A: The range of instruments you can trade is huge. Most spread betting providers will offer at least the following markets:
This means that you can make spread bets on individual shares or stock market indices like the FTSE 100 and the Nikkei. You can also spreadbet on commodities like oil, agricultural produce and metals like gold, silver and platinum. You can even trade one currency against another; for instance bet on the rates for euro/US dollar, sterling/US dollar and sterling/euro.
Usually, it is only possible to spreadbet on individual shares when the underlying stock exchange on which the stock is quoted is open for trading. The other markets (indices, commodities...etc) derive their value from future contracts which means that you may be able to trade them even after-hours.
A: Most choose to use spreadbets for positions lasting a few hours or days but they can very well be employed for longer-term strategies over a few weeks or months. In fact there are different kind of spread bets available including daily, weekly, monthly and quarterly bets. To maintain long term positions, it is usually best to use the 'futures-style' bets that run for up to three months at a time and which you can simply 'roll' to the next quarter.
P.S. Note that not all providers may offer the weekly, monthly or quarterly bets however almost all will offer the daily rolling bet. Do understand when one bet is more attractive to use than the other.
A: I'll run through a quick example which will hopefully make things clearer.
FTSE 100 actual market price = 5350
Spreadbet quote is 5349/5351
The first number constitutes the sell price while the second is the buy price, so say for example if you believe that the market will go up, you would buy at 5351, for say £1/point; which means that you're £2 down from the outset as the sell price is 2 points lower, but obviously you expect that the market will rise and thus be able to sell at a much higher price as the spreadbet quote mirrors the market.
The movement of the underlying asset is measured in points so for instance; for shares 1 point = 1 pence while for indices usually 1 point = £1 and you can place a spreadbet of any value against every point movement in the underlying i.e. £1 per point, £10 per point or £15 per point...etc. To close a spreadbet you simply place an opposite bet on the specific asset at the same £ per point. To close a buy bet you sell at the current quote and to close a sell bet you buy at the current quote.
As for financing with the above example, what you've essentially done, when opening a buy position at £1/point is roughly equivalent to investing £5351 of FTSE 100, now to open that spread bet the provider will require a margin (a percentage of the money invested in the market) - the percentage required differs from provider to provider. Let's suppose that to open an up bet for £1/point will require £150 margin, now if you keep that bet open overnight, the money outstanding i.e money invested minus the margin, will need to be financed, this is calculated using the LIBOR rate with a bit added on top for the broker, with the current LIBOR rate it would work out to be about 60p per night.
Note: The example above serves as a simple explanation and make use of round prices. What is happening in actual fact is that if trading on the FTSE the spread might be 4523-4525 if the current index value is 4523.9 - 4524.1. If you buy FTSE at 4525, with a £1 stake, then you will be immediately £2 in loss (due to the 2 point spread) and will gain £1 for every point increase in the FTSE, and lose £1 for every point decrease in the FTSE.
In practice there is never any single price in the market for any instrument so it's too simplistic to say the FTSE is at 4523 for instance... there's always a price to buy and a price to sell. So the FTSE may trade at 4523.9 - 4524.1 and on the spread betting provider's platform this would be quoted to say 4523 - 4525.
A: Suppose Tesco (the supermarket chain) share price opened the day at 360.50p and you thought that Tesco shares are worth buying in the short term. With shares, spread betting providers usually take the price from the underlying exchange and add a little bit extra to the bid-offer spread; which represents the full round-trip cost of a trade (since there is no extra commission or stamp duty to pay).
Checking the daily rolling quote for Tesco you see the bid-offer spread being quoted at 354.1-355.1 and decide to buy (i.e. go long) at £100 per point movement at 355.1p. Each point is the equivalent of a one pence move in the share price, so a
bet of £100 a point is the equivalent of buying of buying 10,000 shares (to get an idea of your total exposure for UK shares always add two zeros to the amount you have bet per point).
Let's say Tesco ends the day up at 363.50.
Bought £100 a point Tesco at 355.1p.
Sold £100 a point Tesco for an £840 profit (363.50-355.1 = 8.4 x100 = 840).
* However if Tesco ended the day down at 350 you would lose £240 (350-355.1 = -5.1 x 100 = -510).
To highlight the access provided by spread betting, referring to the above Tesco example again, betting £100 per penny movement would be the monetary equivalent of buying 10,000 shares as each penny movement in the share price can win or lose you £100.
Compare this to a stockbroker where you would need to put down £35,510 to buy the stock, this contrasts sharply to a spread bet where you only have to make an initial deposit (also known as the Notional Trading Requirement).
Some spread betting providers offer up to 5% NTR on blue chips meaning that you would need £1,775.50 to enter this trade. Be warned, however, that if the market were to move against you, you would be required to make additional payments to maintain your position.
A: Typically, most of the major forex pairs like the euro/£ will have a tick size of 0.0001 so for instance euro/£ can be trading at 0.9500. Minimum bet is usually 50p or a pound per point and normally the spreads are about 2 ticks from the main spot rates and 10 on the corresponding forward rates. Margin requirements are usually 1% or 2% of the effective market exposure.
In the past I used to spread bet quite frequently on the exchange rate between the USD (Dollar) and the EUR (Euro). If the exchange rate is quoted as, say 1.4241 this means that €1 buys you $1.4241. Here you are basically betting on the last digit ticking up and down, so a £1 spreadbet actually means that for every 100th of a cent (point) the exchange rate moves you make (or lose) £1. It is worth noting that the forex market is huge and very volatile and these numbers can fluctuate by as much as 20 points in the space of 15 minutes, in some case by 100's.
Let's take an example involving the euro/£ cross-rate. For instance, with the euro/£ rate in February at 0.9500 you could have opened a short bet at £1 per point if you thought that the euro is going to weaken against the UK sterling. This would be equivalent to a market exposure of £9500 and based on a 2% margin requirement this would require a minimum deposit of £190. In mid-March the cross-rate was 0.8800 (meaning that 1 euro was worth 88p) and you could have closed your down bet for a gain of £700. (0.9500 - 0.8800 = 700 points x £1). On the other hand, in June the euro was trading at 0.8432 and by last October it had rallied to 0.9520. Had you bought this trade at £1 a point, your gains would have been £1088.
As you can see, once you have grasped what a one tick move represents on a particular currency pair, you simply have to decide the amount of pounds you wish to bet per tick and open a trade accordingly. All profits and losses will be computed in your account currency, normally sterling.
A: Yes, in fact there are certain advantages in using spread betting as opposed to futures to trade commodities as it removes the undesirable currency exposure. For instance gold is quoted in dollars and has been very popular recently as a hedge against inflation, but the currency presents a complication for traders whose local currency isn't USA dollars.
If you had bought gold on 5th September 2009 you would have had to pay some $960/oz. If you had held this position until the 19th September and sold at the highs of $1024/oz you would have made a gain of $64/oz. However, if you had made this transaction in sterling, you would have actually made less profits since as gold increased, so did sterling's value against the dollar.
To understand this consider that on the 5th September, £1 was worth $1.63 which means that gold was $599/oz. On the 19th September the UK pound was trading at $1.67 which implies that gold was only worth about $613/oz and you would have 'only' made a gain of $14/oz.
However, since spread bets are traded in pounds per point for each point the underlying market moves, regardless of the currency, you still make or loss a pound. So going long using a spread bet in our example you would have made stood to benefit from the full $64/oz.
Hope that answers some of your questions but feel free to send me queries, comments or concerns at traderATfinancial-spread-betting.com :-)
Please do not copy/paste this content without permission. If you want to use any of it on your website contact us via email at 
traderATfinancial-spread-betting.com (remove the AT and substitute by @).
