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financial spread betting pdf

If you think spread betting is complex and high risk then think again. Stuart Fieldhouse demonstrates that with the right knowledge and approach it needn't. PDF | I expect you have seen adverts promoting "easy" money making opportunities by trading with spread betting and leveraged financial. mirrors (and indeed overlaps with) practices in conventional financial markets. In this form of betting, a number of bookmakers quote a bid-offer spread. ROVINATO DAL FOREX NEWS

Since you put the bet on selling the stock short at the bid price, you must now close it out at the ask price of Note that the spread is to your disadvantage both opening and closing your bet. You will always have to buy at a higher price in the spread and sell at the lower price in the spread. With the bet closed, the profit and the margin the broker asked you to put up gets released immediately and is available for you to withdraw or use on another trade.

Stake amount Whenever you place a spread bet, you have to choose your stake size. Your stake size also determines how much margin you must put up to place your spread bet. The larger your bet, the more margin required for the trade. Daily-funded and rolling bets There are two types of spread bets, in terms of how long the bet is good for: Daily funded bets These are quite rare nowadays. A daily funded bet expires at the end of the trading day; if you have not already closed out your bet before then, it will be closed out at the closing price of the day.

The spread betting company charges an overnight funding fee. You can control your risk level and set take-profit levels with the use of stop-loss orders and limit orders. Learning to manage your bets well once you have them in place is a key part of learning how to spread bet successfully. Stop-loss orders explained You place a stop-loss order at a price level that represents a certain amount of loss, in case the market moves against you.

This will limit your potential loss on the bet to an amount you are comfortable with. With a standard stop-loss order, if the market hits your stop price, then your bet will automatically be closed out at the best available market price. So, for our Tesco example, when going short the stop-loss order is set above the market price — a ten-point stop loss would be set at It is important to note the difference between spreads in sports wagering in the U.

In the U. In the UK betting above or below the spread does not have a known final profit or loss, with these figures determined by the number of unit points the level of the final outcome ends up being either above or below the spread, multiplied by the stake chosen by the gambler. For UK spread betting firms, any final outcome that finishes in the middle of the spread will result in profits from both sides of the book as both buyers and sellers will have ended up making unit point losses.

So in the example above, if the cricket team ended up scoring runs both buyers at and sellers at would have ended up with losses of five unit points multiplied by their stake. This is a bet on the total number of points scored by both teams.

Suppose team A is playing team B and the total is set at If the final score is team A 24, team B 17, the total is 41 and bettors who took the under will win. If the final score is team A 30, team B 31, the total is 61 and bettors who took the over will win. The total is popular because it allows gamblers to bet on their overall perception of the game e.

Example: In a football match the bookmaker believes that 12 or 13 corners will occur, thus the spread is set at 12— A "sell" transaction is similar except that it is made against the bottom value of the spread. Often "live pricing" changes the spread during the course of an event, increasing a profit or minimizing a loss. In North American sports betting many of these wagers would be classified as over-under or, more commonly today, total bets rather than spread bets.

However, these are for one side or another of a total only, and do not increase the amount won or lost as the actual moves away from the bookmaker's prediction. Many Nevada sports books allow these bets in parlays , just like team point spread bets. This makes it possible to bet, for instance, team A and the over, and be paid if both team A "covers" the point spread wins by that amount or more and the total score is higher than the book's prediction.

Such parlays usually pay off at odds of with no commission charge, just as a standard two-team parlay would. Mathematics[ edit ] The mathematical analysis of spreads and spread betting is a large and growing subject. For example, sports that have simple 1-point scoring systems e. Financial spread betting[ edit ] By far the largest part of the official market in the UK concerns financial instruments; the leading spread-betting companies make most of their revenues from financial markets, their sports operations being much less significant.

Financial spread betting in the United Kingdom closely resembles the futures and options markets, the major differences being the "charge" occurs through a wider bid—ask spread ; spread betting has a different tax regime compared with securities and futures exchanges see below ; spread betting is more flexible since it is not limited to exchange hours or definitions, can create new instruments relatively easily e.

Financial spread betting is a way to speculate on financial markets in the same way as trading a number of derivatives. In particular, the financial derivative contract for difference CFD mirrors the spread bet in many ways. In fact, a number of financial derivative trading companies offer both financial spread bets and CFDs in parallel using the same trading platform.

Unlike fixed-odds betting, the amount won or lost can be unlimited as there is no single stake to limit any loss. However, it is usually possible to negotiate limits with the bookmaker: A stop loss or stop automatically closes the bet if the spread moves against the gambler by a specified amount. A stop win, limit or take profit closes the bet when the spread moves in a gambler's favor by a specified amount.

Spread betting has moved outside the ambit of sport and financial markets that is, those dealing solely with share, bonds and derivatives , to cover a wide range of markets, such as house prices. Additionally, by avoiding the favourite-longshot bias , where the expected returns on bets placed at shorter odds exceed that of bets placed at the longer odds, and not betting with one's favorite team, but rather with the team that has been shown to be better when playing in a specific weather condition and time of day, the possibility of arriving at a positive outcome is increased.

Tax treatment[ edit ] In the UK and some other European countries the profit from spread betting is free from tax. The tax authorities of these countries designate financial spread betting as gambling and not investing, meaning it is free from capital gains tax and stamp duty , despite the fact that it is regulated as a financial product by the Financial Conduct Authority in the UK.

Most traders are also not liable for income tax unless they rely solely on their profits from financial spread betting to support themselves. The popularity of financial spread betting in the UK and some other European countries, compared to trading other speculative financial instruments such as CFDs and futures is partly due to this tax advantage.

However, this also means any losses cannot be offset against future earnings for tax calculations. Conversely, in most other countries financial spread betting income is considered taxable. For example, the Australian Tax Office issued a decision in March saying "Yes, the gains from financial spread betting are assessable income under section or section of the ITAA ".

This has resulted in a much lower interest in financial spread betting in those countries. Financial spread bet example[ edit ] Suppose Lloyds Bank is trading on the market at p bid, and p offer. A spread-betting company is also offering p. We use cash bets with no definite expiry , or "rolling daily bets" as they are referred to by the spread betting companies. We use the offer price since I am "buying" the share betting on its increase. If a bet goes overnight, the bettor is charged a financing cost or receives it, if the bettor is shorting the stock.

The punter usually receives all dividends and other corporate adjustments in the financing charge each night. For example, suppose Lloyds Bank goes ex-dividend with dividend of The bettor receives that amount. The exact amount received varies depending on the rules and policies of the spread betting company, and the taxes that are normally charged in the home tax country of the shares.

Terminology and acronyms[ edit ] High of day the highest price the market traded at for the day. Intraday trader A trader operating from within each day's trade times. LoD Low of day the lowest price the market traded at for the day.

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Financial Spread Betting Guide - Tips on Getting Started


The bids and offers of all the participating market makers are gathered and the best bid and best offer are displayed. However, the prices displayed by the market makers are not absolutely guaranteed for trading, and it is frequently necessary for us to check the market before quoting you a betting price for larger bets.

Market-maker stocks can be extremely illiquid. Your bet is the equivalent of buying shares. Your bet is the equivalent of selling short shares. You open the bet at , plus the Controlled Risk dealing spread of 5. You have to decide how much money you want to risk on the bet. You decide to put your Controlled Risk stop at That means you are risking 30 points , opening level, minus , stop level. That is the most you can lose. Your bet is closed at exactly , your stop level, not at our current quote.

You think that the stock will rise in the short term and ask IG Index for a Daily quote for Vodafone. We quote you You also instruct us to automatically roll over all Daily bets on your account. At the end of trading on Thursday, Vodafone closes at Your Daily bet is rolled over by closing at this level and re-opening a new bet for the next day at The next day Vodafone makes strong gains, ending the session on Friday at Once again your bet is rolled over; the current bet is closed at and a new bet is opened for the next business day at Your profit is calculated as follows: Initial bet: Closing level Opening level Difference You decide that the stock is due to rise.

You open the bet at Lloyds TSB does rise, and two weeks later the stock is trading in the market at p. Market spread will be added to the IG spread shown in the tables. Market spreads can widen significantly, particularly at the beginning and end of the trading day. Controlled Risk bets may not be available on certain illiquid stocks; please ask our dealers for current information.

These change regularly; ask dealers for current details. This applies to both opening and closing transactions. No spread is charged on option bets which are left to expire. The size of the spread varies between 4 and 20 points, depending on the option premium, the time to expiry and the volatility and liquidity of the underlying stock. The percentage will vary depending on the volatility of the share and the Exchange on which it is traded.

Price or less — — and above e Bets on UK shares are denominated in pounds per point. For each share, one point means one penny. Bets on US shares are denominated in dollars or pounds per point, at your choice. For each share, one point means one cent. Bets on European shares are denominated in pounds per point or in the local currency normally euros , at your choice.

Bets on shares in other markets are denominated in pounds per point or in the local currency at your choice. The bet size equivalent to a position in a particular number of shares is calculated in the same way as detailed above. Bets on UK Share Options are always denominated in pounds per point. Bets on US Share Options are always denominated in dollars per point. We will not quote UK Daily shares bets after Prices are quoted for the current and next quarter month.

IG normally quotes prices for the next three expiry months. For a US Share Option, IG normally quotes prices for four expiry months; two near months plus two additional months from the relevant expiration cycle. The last dealing day for Daily Bets is the day on which the bet is opened. The last dealing day for US Share Options is the third Friday of the expiry month or the previous business day if this is a market holiday. If no price is reported in the Financial Times then the price used will be the price as reported by Bloomberg.

Bets on Share Options cannot be rolled over. When a Daily Bet is rolled over, the expiring bet is closed at the last traded price at or after the close of the relevant Exchange without IG spread. The opening level of the new bet is adjusted to reflect the effect of interest and in cases where the relevant share goes ex-dividend before the next market opening the effect of any dividend.

No IG spread is charged on the opening of the new bet. Details about the Shares Bets: Notes methods use to calculate interest and dividend adjustments are available on request. Different interest rates apply to long and short positions; current rates are available on request.

When a Quarterly Shares Bet is rolled over, the expiring bet is closed at the last traded price at or after the close of the relevant Exchange plus or minus half the IG spread as shown in note a. Controlled Risk spread is only charged once on the opening of any bet. If a Daily Controlled Risk bet is rolled over, no further spread is charged. If a Quarterly Controlled Risk bet is rolled over, half the normal IG spread as shown in note a is charged on the opening leg of the transaction.

IG will always attempt to replicate the rights and adjustments afforded to shareholders or the underlying stock when adjusting a spread bet. Please be aware that, with certain corporate actions such as entitlements or rights issues, those clients who have shorted a stock made a down bet will not have the option to take up the rights or entitled shares and may be assigned a larger position in terms of pounds, or any other currency, per point. Typically when there is an element of choice in a corporate action, the choice is usually only extended to those who have invested in bought the stock.

If you go short of a stock, any rights or other entitlement may be exercised against you. In the unlikely event of a dispute, a client may ask our regulator the Financial Services Authority FSA , or any successor, to arbitrate. IG Index will take whatever action it considers fair and reasonable if a share is suspended, but a client may ask the FSA to arbitrate in the event of a disagreement.

In the same way that the FTSE itself represents a weighted average of the share prices of its constituent stocks, sector indices are weighted averages of the share prices of their individual constituents. The relative performance of individual sectors provides a vital guide to the mood of the markets and the shifting patterns of investor behaviour.

A bet on the sector avoids overexposure to any particular company, reducing the impact of company-specific news on your investment. Types of bet As with our bets on individual shares, you can take a short-term view with a Daily Bet, or a longer-term view with a Quarterly Bet. You are right. At the end of trading on Wednesday, the sector closes at On Thursday the sector continues to rise and you decide to cut your losses and close your position.

Your loss is calculated as follows: Initial bet Closing level Opening level Difference The spread is usually calculated as a percentage of the current sector price as follows: Daily: Near quarter: Far quarter: 0. Thus a sector priced at will normally incur a deposit times the bet size.

In the case where a trade has an associated Guaranteed Stop, settlement will be free of IG spread. Rollover instructions must be left at least 30 minutes before the close of the exchange on the day the bet is due to expire. The LSE normally closes at Daily Bets: If an instruction to roll has been given, Daily Bets will settle on the basis of the last price of the sector in question at or prior to close of the exchange.

They will be re-opened for the following trading day at a different level, reflecting the cost of funding the position and any dividends or corporate actions seen on constituent shares of the sector in question. If you believe a specific stock index like the FTSE , currency pair or commodity will rise or fall, you can bet so much a point and either keep the end date open or set a time limit, which is normally a day or three months forward to close the trade.

For every point the trade moves in your favour, you win multiples of your stake and for every point it moves against you lose multiples of your stake. We will go into this in more detail later. Your profit or loss is the difference between the price at which you enter and the price at which you close the trade.

The more the market moves in your direction you have predicted, the greater your profit. Conversely, when the market moves against you, the more you lose. The danger is that the loss may exceed your deposit margin. The fees are in the spread - so watch the spread. There is no CGT, stamp duty, explicit trading commissions.

Trading on margin allows traders and investors to open larger positions, which makes it viable to target relatively small price movements.

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Make Money Trading Currencies (FX) - Financial Spread Betting

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