Once you have signed up to one of the spread betting platforms, have a look around it and get a feel for the software. Do not feel the need to deposit straightaway, some platforms have spread betting demo accounts that allow you to bet with practice money. 100% risk free.
Now that you’re familiar, you may want to deposit; but wait! Do you know what the “ask” (or “offer”) and “bid” prices are? And most importantly, do you know what a stop loss is?
Now once you have found the instrument or market to trade in, find the trade button and you will receive several options. The first and most blatant is “BUY” or “SELL”. Let it be clear though, there is absolutely nothing being bought or sold. You are merely betting on the movement and no contracts are being exchanged etc. If you choose “BUY” then you are expecting the price to go up as you “purchase” at one price and hope to sell at a later, higher price. If you choose “SELL” then you “sell” at one price and hope to buy at a later, lower price. These are the equivalents of going “long” and “short” in trading. So as an example, you “buy” the FTSE100 at 5138 at £5ppp (pounds per point), the FTSE100 increases 5 points to 5143 and you make a profit of £25. This is essentially how spread betting works.
Another option is the “stop loss order”. Placing a stop loss will guarantee that you don’t lose more than acceptable. With spread betting, you are capable of losing more money than your deposit and debts can run into the thousands. New players need to realise that this is a serious risk and you must know exactly what a stop loss order is.
How to go Long or place a Buy Trade
- To open a new buy trade or ‘long’ and profit from a rising price you need to buy at the higher price, the offer price.
- To close this you would sell at the lower price, the bid price.
- You can open a new long position by either dealing at a quoted price on the trading platform or over the phone. It is also possible to open trades by placing an order.
Example:
You wish to go long (buy) BP as you think BP’s price will go up.
The BP quote is 562 – 563. You buy £2 a point at 563. At a later date the price rises to 631 – 632 and you decide to close the trade.
To do this you would sell £2 a point at 631.
Your profit would be £2 x (631 – 563) = £136.
How to go Short or place a Short Selling Trade
- Placing a trade that profits from a fall in price rather than an increase is called going short. You need to open a new trade by selling if you want to go short.
- The question “How can I sell something I do not own?” is commonly asked. But there is no need to get caught up trying to understand this. If you treat any market, whether it’s a share, gold, Brent oil or FX, as just a number then it is much easier to understand.
- If you go short (by selling) and the price falls then when you close the trade (by buying) you profit. If it rises you lose money.
What is NTR or Initial Margin?
With spread betting you only need a reduced portion of the full value of a trade available in your account. This amount is called the NTR, Notional Trading Requirement, also known as Initial Margin. This amount is set aside whilst a trade is open. A £500 deposit might allow you to open a £10,000 exposure to a blue-chip stock like Vodafone, so a 5% gain in the stock price would practically double your money before costs. As soon as the trade is closed the amount is released and available. You need sufficient funds on your account to fully cover each trades NTR requirement for the duration of the trade.
NTR Example
Barclays Cash Rolling Daily has an margin rate of 10%
To calculate the NTR
NTR = (stake x current price x margin rate) / bet per
For example buying £2 of Barclays in the above example the NTR deposit required would be:
(2 x 285.53 x 10%) / 1 = £57.11