The charts come with an array of features that include: Many different time intervals e. Fibonacci retracements and trendlines Indicators e. The first currency listed is referred to as the base currency and the exposure of a spread bet is reflected in the second currency quoted, otherwise known as the quote currency. Objective : Allows investor to speculate on the price movement of an exchange rate without ever taking delivery of the currency over any period.
Intended Retail Investor : Small to large scale investors who want to speculate on movements in the foreign exchange market. Nature of Product A Spread Bet is a financial product under which the parties agree to exchange the difference, in cash, between the opening price and the closing price of a trade. Spread Bets are leveraged financial products, meaning that you only have to outlay a small percentage of the notional value of a transaction.
There are a number of different order types that you can place in connection to a trade to manage your risk such as stop loss, trailing stop loss and guaranteed stop loss orders. Please make sure you fully understand the nature of spread betting and the below risks associated with trading such products before making a decision to trade as there is a chance you can lose significantly more than your initial deposit.
Spread betting, CFDs and margined forex trading are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Click here to see the risk warning notice. Risks of Product Although Spread Bets allow you to speculate on the rise and fall of global financial markets at a relatively low cost, without ever owning the underlying asset, they are considered to be risky products: Counterparty risk - Spread Bets are "over the counter" OTC products, which means that they are not traded on a licensed financial market, such as a Stock Exchange.
Leverage risk - The leverage nature of Spread Bets means that a relatively small move in the price can cause an immediate and substantial loss to you, including a loss far greater than the amount of your initial investment. Gapping risk - Financial markets can be very volatile.
Gapping refers to an occurrence whereby the quoted price moves sharply from one level to the next, through an order level meaning your order may be executed at a worse price than you had hoped for which may incur losses beyond expectation. Costs of Product The principle cost or commission of trading Spread Bets is incorporated in what is known as the Spread, which is the difference between the sell and buy price. The effect of these adjustments is to mirror the effect of us financing the asset in the underlying market on your behalf.
When holding long positions your account will typically be debited with the charge and, when holding short positions, may lead to you being credited with the charge but it will depend on the relative interest rates of the countries of the currencies involved in the trade. You should consider whether you can afford to take the high risk of losing your money. The information and comments provided herein should not be considered as an offer or solicitation to invest.
Under no circumstances should anything herein to be construed as investment advice. The information on this site is not directed at residents of the United States or any particular country outside the UK and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Apple, iPad and iPhone are trademarks of Apple Inc. App Store is a service mark of Apple Inc. All rights reserved. If you haven't closed your trade and the session ends then your position will roll over to the next trading day. McNeil, a mathematics teacher who became a securities analyst—and later a bookmaker—in Chicago during the s has been widely credited with inventing the spread-betting concept. But its origins as an activity for professional financial-industry traders happened roughly 30 years later, on the other side of the Atlantic.
At the time, the gold market was prohibitively difficult to participate in for many, and spread betting provided an easier way to speculate on it. Let's use a practical example to illustrate the pros and cons of this derivative market and the mechanics of placing a bet. First, we'll take an example in the stock market, and then we'll look at an equivalent spread bet.
Note here several important points. Also, normally commissions would be charged to enter and exit the stock market trade. Finally, the profit may be subject to capital gains tax and stamp duty. Now, let's look at a comparable spread bet.
The value of a point can vary. In this case, we will assume that one point equals a one pence change, up or down, in the Vodaphone share price. In the U. However, while spread bettors do not pay commissions, they may suffer from the bid-offer spread, which may be substantially wider than the spread in other markets. Keep in mind also that the bettor has to overcome the spread just to break even on a trade. Generally, the more popular the security traded, the tighter the spread, lowering the entry cost.
In addition to the absence of commissions and taxes, the other major benefit of spread betting is that the required capital outlay is dramatically lower. The use of leverage works both ways, of course, and herein lies the danger of spread betting.
While you can quickly make a large amount of money on a relatively small deposit, you can lose it just as fast. If the price of Vodaphone fell in the above example, the bettor may eventually have been asked to increase the deposit or even have had the position closed out automatically. In such a situation, stock market traders have the advantage of being able to wait out a down move in the market, if they still believe the price is eventually heading higher. Despite the risk that comes with the use of high leverage, spread betting offers effective tools to limit losses.
Risk can also be mitigated by the use of arbitrage, betting two ways simultaneously. Arbitrage opportunities arise when the prices of identical financial instruments vary in different markets or among different companies. As a result, the financial instrument can be bought low and sold high simultaneously. An arbitrage transaction takes advantage of these market inefficiencies to gain risk-free returns. Due to widespread access to information and increased communication, opportunities for arbitrage in spread betting and other financial instruments have been limited.
However, spread betting arbitrage can still occur when two companies take separate stances on the market while setting their own spreads. At the expense of the market maker, an arbitrageur bets on spreads from two different companies. Simply put, the trader buys low from one company and sells high in another. Whether the market increases or decreases does not dictate the amount of return. Failure to complete transactions smoothly can lead to significant losses for the arbitrageur.
Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace. Arbitrage, in particular, lets investors exploit the difference in prices between two markets, specifically when two companies offer different spreads on identical assets. The temptation and perils of being overleveraged continue to be a major pitfall in spread betting.
However, the low capital outlay necessary, risk management tools available, and tax benefits make spread betting a compelling opportunity for speculators.
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