Making a Trade

We already know what the Sell and Buy markers are, the High and Low, is the current DAILY high and low of that trade. Therefore, you can quickly see from the quote that you receive how close that is to that day’s lowest or highest price point. Simple really. If you for instance asked for a quote on FTSE 100 and got a Sell at 4009 and a buy at 4010, the daily high was 4014 and the daily low 4890. It would make sense to go SHORT as the obvious trend, without looking at any chart is down. A word of warning though, this is just one of the many criteria that you should use. Don’t use this as a primary trading strategy. Many people do sadly and end up losing a great deal, as the markets can swing quickly and the Low of that day may have been a blip caused by some news that morning.

The Bid is the amount that you wish to trade per point. For example if you entered £10, you would be trading £10 per point that contract goes up or down. When you have entered the amount you wish to trade, you usually then press TRADE which will connect you with your spread betting provider live who will give you a price. Now you have to act quickly here. So you MUST know which direction you want to trade. Sell (SHORT) or Buy (LONG) – the quote for each will appear on your screen for only a few seconds, as the markets move so quickly. Make your choice, you will than receive an on screen contract number that will also appear on your Statement sent by post or e-mail.

Margin Factor

One important factor that differs from provider to provider is the margin factor. This relates to the percentage of the effective market exposure that the spread betting firm requires you to deposit in your trading account in order to place a bet. For example, at the present time CMC’s margin factors range from just 5% to 7.5% for the blue chip companies, and goes up to 10% / 15% / 20% / 25% / 30% / 35% and 40% for the smallest caps. The margin factor varies from varies from spread betting provider to provider and when selecting your broker, you should make sure that the provider has a low margin factor for the particular market you wish to deal in.

Example: Let’s say BP stock is trading at 450p and you wish to open a spreadbet position in BP £10 / point. The margin factor for BP is 5%. This is the same exposure as 1000 shares at 450p, as such to place this bet you need to have 5% of £4500 in your trading account which comes to £225.

Opening a Spread Trade

The concepts of spread trading are far simpler than they may first seem. Put simply, you can buy or sell all available markets, giving you the ability to make money if the market goes up or down.

When you ‘BUY’ the market you are expecting the market price to rise or finish at a higher price than you bought at. When you ‘SELL’ you are expecting the market to fall or finish at a price lower than you sold at.

Spread betting providers quote predictions for the closing levels, at specific dates in the future, for a variety of markets.

Example: FTSE 100 – Daily Cash ‘5000 – 5001’.

With this quote you would be speculating on the closing level of the FTSE 100 index for the day you trade. You can leave your trade to expire with the spread betting provider’s market or trade out before expiry on the constantly variable quote.

Note: Most providers will price an open bet at the level of your exit. As such if you open a ‘buy bet’ (i.e. go long), this is priced at the bid (where you would sell) and if you are short the bet is priced at the ask (where you would buy/cover). This is logical since if you decided to exit the spreadbet immediately you would incur a loss equal to the size of the spread. For instance if the EUR/USD price spread is 13532.1/ 13534.7 and you decide to open a short position then your opening price is 13532.1 but the current price appearing at the time of purchase is the long price of 13534.7. So a loss straight away. That is why it is a good idea to check the spreads you get…

To Spread Trade Online:

The internet has leveled the playing field for individuals to trade like the pros. And you can do it at home, twenty‐four hours a day. Once you know the trades you want to trade you log in to your account at your Spread Trading Company’s website and place your trades using some very basic steps.

  1. Go to your spread trading company’s website or open the downloaded software.
  2. Log in with your user name and password.
  3. ‘Click on what you want to trade ‐ Indices, Shares, Commodities, …
  4. A list of the Indices, Shares, Commodities, will appear tracking the price movement and showing the Sell/Buy price (Bid/Ask Price or Bid/Offer as it’s also known).
  5. On most spread trading platforms you will also have access to charts showing the price movement over a selected period of time.
  6. Click on the specific share, index or commodity you want to trade.
  7. You then place the trade going either LONG (buy) or SHORT (sell), putting in your stop loss to reduce your potential risk and limit your losses should the trade go
    against you.
  8. Once you’ve entered your order, you will be asked to confirm it. It’s very important to go over the trade again to make sure you input the prices exactly, and that the
    order is exactly as you want it. Once you confirm it, your order is sent to the trading company, and they in turn will confirm your trade has been executed from their
    end.
  9. Once your trade in confirmed your trade is open and live.

Points to Note

Some spread trading companies will have a default or suggested stop loss price (not all sites provide this). This is for your protection and be aware that it is a suggestion only and can be changed to a level you have decided on.

There will be a minimum stop loss allowed and the site will advise you of this.

On each trade the spread trading company will automatically show you how much margin is required to place the trade.

When placing the trade you will be able to see how big the spread is i.e. the difference between the Buy and Sell price (also known as the Bid/Ask or Bid/Offer price).

You will also be able to see the maximum and the minimum stake you can trade per point.

Buying the Market

To buy a market you simply call the trading desk or login to the client website area. After selecting the market you want to trade, you obtain a dealing quote and BUY the quote. You stake will have been defined at the time of the trade.

When buying a bookmakers quote your trade price will be the higher of the two figures (5001 in our example).

For every point by which you turn out to be right, you win a multiple of the stake you chose. Conversely, for every point that you turn out to be wrong, you lose a multiple of your stake.

Selling the Market

When selling a bookmakers quote your trade price will be the lower of the two figures (5000).

To SELL a market the procedure is the same as above but this time you simply SELL the quote, for a stake that you will have again defined at the time of the trade.

Opening a Spread Bet: Spread Betting Example

 

Closing a Spread Trade

A trade can be closed at any time (during trading hours) up to expiry. To close a position you simply have to trade in the opposite direction to which you opened, with the equivalent stake. Should you leave a future bet to expiry; the spread betting provider’s computer system will normally automatically process an opposing trade at the expiry price.

Buy Positions

To fully close a Buy position you simply ‘Sell’ the market for a stake equal to the opening bet. The difference between the closing and opening price shows the amount of money you have won or lost. Simply take this difference and multiply it by your stake.

Buy Position: For example let’s suppose that earlier you had bought the Dow Jones Index market for £3 at 9930 then you closed the position at 9980. (9980 – 9930) = 50. Multiply this by your stake; 50 x £3 = £150. You made a profit of £150 on this trade.

Sell Positions

To fully close a SELL position you simply ‘BUY’ the market for a stake equal to the opening bet. The difference between the opening and closing price shows the amount of money you have won or lost. Simply, take this difference and multiply it by your stake.

Sell Position: For example let’s suppose that earlier you had bought the FTSE 100 Index market for £3 at 5200 then you closed the position at 5105. (5200 – 5105) = +95. Multiply this by your stake 95 x £3 = $285. You won £285 on this trade.

Over Closure and Partial Closure

You can leave a proportion of the opening trade still open by selecting an opposing position that does not fully cover the opening stake. This is called a ‘Partial Closure’. Conversely you can close a position and open a new one by selecting a closing stake which is greater that the opening stake. This is called ‘Over Closure’.

Should you choose to leave your trade to expiry; the spread betting provider will close the trade for you unless you instruct them to roll-over the bet. You should be aware that some markets expire at one single price and others expire with a spread.

Calling the Trading Desk

One of the reasons people have taken to spread trading on the Internet is that is saves the possible embarrassment of talking to a City trader or broker on the phone. A great many people are reluctant to show their inexperience to a faceless person at the other end of the line even though most would not admit it openly.

Even though most of your dealing will be on the Internet, phoning the trading company is inevitable at times. Although this reluctance to phone is probably an irrational feeling, it is real and cannot be ignored. So, I will not ignore it!

First I would say the traders taking orders for the trading company are really nice, helpful people. Yes, they are busy and efficient but if you say you are new to spread betting, they will give you all the time and help you need and will explain things if necessary.

If you have a question or questions that will take some time to answer, simply ask if they would prefer to call you back when they are less busy. In my experience they appreciate your thoughtfulness and will give you all the time you want without taking you up on your offer.

OK, we will now take a close look at how to prepare and then what to say on the phone, including some example conversations so that you can appear totally professional!

Opening a Position

If you wish to open a position by phone, there are a couple of things to remember:

  1. Ask for a price before you tell them whether you intend to buy (go long) or sell (go short).
  2. Have a good idea what the normal spread is so that you do not enter when the spread is particularly wide.
  3. Know clearly what you want to do so that you can decide to trade very quickly. In some fast moving markets, if you take too much time they may have to re-quote you.
  4. If the spread they give is not what you expect, tell them you will leave it. Put down the phone, have a re-think and phone again.
  5. Once you say “I’ll buy….” Or “I’ll sell …” you cannot change your mind. The deal is done.
  6. The conversation will be polite but brief and to the point.
  7. They will always repeat the instruction back to you to ensure that it is correct.
  8. Every call is recorded for both your and their protection.

When you call your spread betting company, don’t expect any long winded courtesy. Don’t take it personally, they’re not horrible people at all. They are incredibly busy people and have to supply you with a quote as quick as possible. The usual conversation for a trade made over the phone is as follows:

FB – “Hello FB, can I take you account number?”

You – “Hello, yes its wrx1234”

FB – “Mr Jones, what can I quote you for?”

You – “FTSE100, please!”

FB – “FTSE100 is 4409/4410”

You – “I will go Long on the FTSE100 @ £10 per point”

FB – “Thank you Mr Jones – you have gone LONG on the FTSE100 March @ 4410 – £10 per point trade! Is

there anything else?”

You – “No thank you. Goodbye”

And that’s that. Two points I must mention. NEVER tell the financial betting company when you ask for a quote which direction you wants the quote e.g.: “FTSE 100 Short please” just ask for the FTSE 100. Secondly, if you don’t wish to make a trade after receiving the quote just simply say “Nothing Done”. Communication over the phone can be risky and when it’s as serious as this, it has to be made clear so each party understands. It’s not being rude at all, you are just doing business.

So don’t take it personally when the spread betting provider are being to the point and what may seem rude. They are just doing their job as quickly and as effective as they can. Another thing I must point out is that they present the Sell and Buy as two numbers. They rarely say “Sell is….” etc. They simply state “FTSE 100 4400/4410” you should read these as the first number being the SELL and the second being the BUY. This is standard practice and if you’re not sure what they said ask them to repeat, however the second time around it maybe a different number as the markets do move very quickly.

You now know how to place a basic LONG & SHORT trade using the spread betting company’s website or over the telephone. It may sound complicated at first but after a few times of practicing it will become second nature to you.

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