GUIDE FINANCIAL BETTING
What is spread betting?
The spread betting is essential while predicting the movement, in other words, direction of stock prices and invested money.In other words, spread betting is the system that allows you to earn based on the movement of shares of stock without having to actually buy those shares. Investing in spread betting, in fact, does not mean a buy of shares in any company.Correctly predicted direction in which you think that the market will move to will get a gain proportional to the amount of movement and the amount invested. Obviously a movement in the opposite direction will lead to a loss.The main attraction of betting fund is that you can profit no matter if the shares fall or go up, moreover, you can get big gains with relatively small investments.Spread betting is a derivatives product that allows you to trade on the price movements of thousands of financial markets including indices, shares, currencies, commodities and more.
In which markets you can trade?
The platforms that allow spread betting include hundreds of trading markets:
- Individual shares (Single action)
- Stock market indices (Indices)
- Commodities (gold, oil, metals, etc. ..)
- Currencies (€ / $ / £ etc.)
- Bonds and interest rates
Who are the ones that financial betting is for?
- Novice traders: spread betting is excellent while trying to understand how the stock markets. The recommended platforms from BaS provide demos and virtual money to practice before you dive in betting with real money.
- Long-term investors: you can use spread betting to protect real investment (as we shall see in the next lessons).
- Short-term investors and speculators: the odds change quickly and you can make a profit at any time, even after a few minutes of entry into a market.
A few examples:
- George thinks that the price of oil will rise. He place a bet which states 10 € profit for each point of increase. The price goes up by 10 points.
George GETS 10 x 10 € = 100 €
- Nataly assumes that the FTSE 100 will rise in value so she places a bet of € 5 for each point of increase. Unfortunately, the percentage drops to 20 points.
Nataly LOSES € 5 x 20 = 100 €
- Albert thinks that the price of the shares of ABC Life will fall. Place a bet of € 7 for each point of decrease in this share. In fact, the proportion drops of 15 points.
Albert EARNS € 7 x 15 = 105 €.
How does spread betting work in practice?
When selecting a market, generally, we will show the name of the market and two tranches.
For example, ANGLO IRISH BANK SELL -> 768-772 <- BUY
The first tranche (768) corresponds to the price of Sell (sale). If we believe that the price will fall then we have to select 768 and determine the amount of our game. Conversely, if we think the share will rise we need to select the portion of Buy (Purchase) to 772.
The difference between the two figures is exactly what the spread says, ie the difference.
So when we think the share will rise then we buy (by selecting the second instalment), and when we expect the share to drop then we sell (by selecting the first instalment, the lowest).
The buying of a security, with the expectation that the asset will rise in value is called 'Long (or Long Position)', and the opposite, selling status is called 'Short" (or Short Position)'.Confirmation of your intention to buy or sell a share involves opening a position.
What is the stake?
When we place a spread bet, we invest a certain sum of money (we gain or lose) for each point of movement. This sum is called the stake. The greatness of a financial bet is represented in terms of movement points.
Suppose you want to bet 10 € for each point of movement in the market 'WALL STREET'. So, in general, the steps are:
- Choose the market WALL STREET
- Insert the stake
- Decide whether to sell or buy according to our forecasts for the market (then click on buy or sell).
The stake remains unchanged from opening to closing of the position.
How much you have to settle for the financial betting?
For these bets you do not need to have funds for the full cost of shares on which you are doing trading. It is only necessary to have sufficient funds in your account to cover the losses. This is known as 'trading on margin'. To know how much money you need to open a position simply display the IMR (initial margin required) associated with each market. Then you have to multiply the stake for this IMR and the result is the amount of money required to open an account in that position.
If the IMR is 50 and we want to place the stake of € 5 then we will need € 250 in our account.
Buying and selling.
We said that when you want to buy you have to do it at the highest price. If we bought a 772 (remember the previous example SELL 768-772 BUY) and after a few days the odds will be 784 to 788 then to close the position we have to sell at the lowest price. We will, however, gain 12 points of movement (784-772 = 12) multiplied by the stake. With a stake of € 8 per point earning would be 8 x € 12 = € 96.
If, for example, the quota is down instead of up and we sold to 765 then we would have lost 7 points of movement meaning 8 x 7 = 56 €.
The same is if you sell: to close the position you must buy at a lower level to earn money.Remember, whether you buy or sell you can always get a gain. The important thing is that the movement of the shares goes in the direction that you have predicted.
When can I close a trade?
You can close your position at any time and get a loss or a profit. It operates 24 hours, this is one of the key advantages of the financial spread betting.
On which platforms can I find financial betting?
Betforwin tried and tested the platform of E-Toro and Bet365. Betforwin strongly advises to play on these sites as they are safe and reliable.
- The financial betting is a system that allows you to earn based on the movement of units. It is up to your correct judgment if the share rise or fall.
- You can earn in the same manner whether the share falls or rises as long as this movement has been correctly predicted.
- With a minimal investment you can earn good sums of money
- The recommended platforms from BaS offer a wide range of markets on which you can trade equities, indices, goods, currencies and interest rates from all around the world.
- In the spread betting there are 2 shares to consider: you buy at the higher price and sell at the lowest price. The selling price is always the lowest and is shown first. The purchase price is always higher and is reported as the second price.
-Basic rule: buy if you think the share rises, sell if you think the percentage drops.
In the past, the spread betting was seen as a product for investors and super fit. Currently, there is a much bigger range of people who experienced the advantages of this technique. In this lesson we will see in detail the advantages of spread betting.
What are the advantages of spread betting?
- Extremely convenient: with spread betting you do not pay commissions or any other fees that you normally pay in traditional trading.
- All profits are tax free, you do not pay the profit tax (CGT)
- It is trading on a margin, meaning that you have to deposit in the account a percentage of the value of your trade, and this allows you to use the rest of the capital for other business
- You can profit from falling markets: trading is done by predictions on the movement of shares
- You can use one account for a wide range of products: stocks, currencies, commodities, etc. ..
What is the advantage of trading on margin?
You deposit just a small percentage of the value of each trade in your account. As seen in Lesson 1, the amount of this deposit is calculated based on the initial margin required (IMR) associated with the market in which you want to open a position. Use this small amount of money instead of buying the shares, it is literally called 'gearing' or 'leveraging'. This technique allows to achieve spectacular results with a relatively small amount of money.
EXAMPLE OF FINANCIAL BETTING:
ABC Limited is trading at 6 €.
We buy 500 shares for a total of 3000 €.
ABC Limited rises up to 7 € (increase of € 1 = 100 points).
By selling the purchased shares you earn 500 x 1 € = 500 €.
ABC Limited is trading at 6 €.
We place a bet 'BUY' with a stake of € 5 per point. In our account we require a deposit of 300 € (the IMR is 60).
ABC Limited rises up to 7 € (increase of € 1 = 100 points).
By closing the position we get a profit of € 5 x 100 = 500 €.
Conclusions: Even if the profit is the same the difference is considerable. With spread betting we have only invested € 300 compared to € 3,000 required for the same operation with traditional trading. In proportion, therefore, the profit is 10 times higher with the latter technique.
But that's not all! With the traditional trading there is a nice list of taxes and miscellaneous expenses to be incurred (by the dealer), hens a profit of 500 € would be reduced before it reaches your pocket. With spread betting the actual profit is 500 €, there are no additional expenses.
What level of control do I have in spread betting?
The financial spread betting offers higher a level of flexibility and control comparing with any other form of trading.Flexibility regarding the duration of the trade: you can open / close a position at any time.Exposure control: you can decide in advance how much you are willing to lose in the event of a negative forecast, setting a parameter of STOP LOSS which represents the amount at which your position will be closed automatically. We will see how to best use this tool in Lesson 4.
Is spread betting cheaper than the traditional trading?
Let's see how spread betting is more convenient considering a purchase of 1000 shares of Coca Cola at £ 16.82 (traditional trading) and a spread bet of £ 10 on the same market. The following figure will showcase both approaches (the left column of the data relating to traditional trading, the right column approach relating to financial betting).
What is hedging?
One of the biggest advantages of betting finance is that they offer a measure of protection for our real investment. This is known as hedging.This technique in betting considers the fall of a market share. In this way, we cover all possible trading losses. This is useful when we lose confidence in our stock market investments and do not want to sell these shares (losing money) to avoid incurring the expenses and fees that this transaction provides. If the price does not come down, in fact, we made a big mistake by paying unnecessarily large sum in taxes. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).
- The spread betting is based on margin trading which offers the opportunity to obtain higher profits by investing less money, the case is not the same with traditional trading. This is known as leverage or gearing.
- In spread betting you do not incur costs of taxes and duties as happens in traditional trading.
- The spread betting is more convenient and flexible. The level of control over the trade is higher.
- You can use the financial bets to cover any losses resulting from the traditional trading. This technique is called hedging.
Course of financial betting: open and close a position (Lesson 3)
We have seen several examples of how spread betting works and the advantages of this type of trading. In this lesson we will see how to open and close a position on the platforms for financial trading.
Given that we have opened an account, in other words, we chose a username and password, and we have indicated our personal data which is recorded on the trading platform that we have chosen (for example, Tradefair, Betfair or VC Financials, Victor, Chandler), to start making trading you need to deposit funds into our account.
These platforms offer the possibility, to monitor and manage your trading activities in a very simple and intuitive way at any chosen time.
You will surely have a screen that lists the most popular markets that are also grouped by category.
Looking in the categories, we can find the market we were looking for. The following data will also be displayed: current price, Daily Change (daily variation) and a graphical notation (an arrow or colour) that indicates the movement of the share.
How to open a position?
Suppose you want to open a position in the market "Anglo Irish Bank - Jun 2008." Typically there is a button 'Trade' to click which brings up the screen with the current buying and selling prices, as well as the box in which you need to define the stake and the two buttons 'Sell' and 'Buy'.Suppose we want to do an operation to 'Buy' at £ 5 per point. In this case you must enter '5' in the stake box and click on 'Buy '. At his point, the play is set and you only need to confirm (normally there also is a summary screen and a button 'Confirm Order' to click on).Many platforms also allow you to set a price at which the system will close the trade automatically.After this step, all information is available to be reviewed in our account, it summarizes all the trading activities that are still in progress or already completed.
financial betting - open a position
Trading on the phone
Many trading platforms allow you to open a position even over the phone. Normally it is to do so through the supplied customer telephone number (paid or free) which will respond to the operator who will make the transaction according to your instructions.
Closing a position
There are 3 ways to close a position:
1 - Allow end position: all bets have a closing date. At the expiration of this date your bet is closed automatically according to the current prices.
2 - Set closing prices: if the quota reaches the closing price that we set the bet is closed instantaneously.
3 - Close the position prematurely at any time we can enter the market and close the position according to the current portion.
financial betting - close a position
How do I close a position?
From our created account, we are allowed to access all markets where we have opened a position. Go into the screen of the selected market and when the closure of a position is a breeze. In fact, it is necessary to enter the same stake indicated in the opening position and click on reverse (' Sell' if the position was opened, 'Buy' if vice versa). Also in this case we will be asked to click on the button to confirm the operation.
All bets will be traceable (as are the bets whose position is still open) in our account, often under the heading 'Open Bets' or 'Betting Open'