An Introduction to Financial Spread betting
Today I want to share with you my experience with some Spread Betting companies. First of all, I want to explain what is actually financial spread betting as a financial product. It has many similarities with Spot Forex and Binary Options contracts but it is totally different. It has regulated as a financial product from the biggest regulators of the world (FSA etc.). One advantage of this product is that it’s tax free, at least in UK and Ireland. There are many financial spread betting firms and they offer Forex, Commodities, Stock Indices, a big amount of shares, Bonds, Interest Rates and House Prices. A client can spread bet in every one of the above products and like Spot Forex and Binary Options he can earn money by the rise or the fall of the market.
In every company there is a bid/offer price for each product. If you believe that the market will rise , you can buy the product in the offer price. If you believe that the market will fall you can sell the product in the bid price. So, simply. The companies made money from the hidden spread within the offer and the bid price. The spread is usually 1 point (pip) for the popular products like Forex, Commodities and Stock Indices. Now, the question is how much money you can earn by the rise or the fall of the market if you will predict right. Before this, you should know some basics things about the financial spread betting. Let’s go.
• The hidden spread
This is how spread betting firms make money. From the hidden spreads. For example, let’s say that we have the currency pair EURUSD and it’s 1.28276 and we have the offer and the bid price. If you want to buy the pair maybe the price will be 1.28277 and if you want to sell the pair maybe the price will be 1.28267. This difference of 10 pipettes (1 pip) is the hidden spread and it’s the company’s profit. Like the Spot Forex Brokers.
• How many $ per point
Now, this is the real deal. In these spread Betting Brokers you can fix your contract and choose how many dollars or euro you want to earn or loose by the change of one point (one pip).So, let’s say that we want to buy the above currency pair, EURUSD, because we believe that the Euro will rise and we choose 20$ per pip(point). We buy at 1.28277. After some minutes the currency pair is at 1.28377 that means that there is a 10 pips change up for our favor. So,
10 pips * 20 = 200$
And this is our profit.
- Stop Loss/ Limit
Like Spot Forex or Binary Options in an Exchange you have the choice to put a stop Loss or a stop limit order. With a stop loss order you can protect your account from a big loss and with a stop limit order you can protect your profit from a big bad change of the market and take your profit and leave.
- Other Orders
You have the choice to put some other orders before the price hit the strike price you want. For example, if the currency pair EURUSD is at 1.29200 right now, you have the choice to put a buy order right now, only when the currency pair will reach at 1.29240. You can do the same with sell orders. You can put Stop Loss/Limit with these orders, too.
- Margin
It’s the amount of money you must have in your account to take a trade. Your account balance must be enough to cover the damage in a case of a loss.
- Profitable ways which I use for spread bets
The best way to make money with spreads, it’s obviously trends. If you can identify a trend from its beginning and invest on it there isn’t a limit to the money you can earn. Of course, stop Loss is a “must” because in a market with high volatility if the price will move against you it’s very easy to wipe out an account. So, you should never take a trade without a stop Loss order.
Except trends, you could trade the news with some orders I said above. For example, if some news is coming, you can put an order to buy in a particular strike price and catch a bullish break out. Stop Loss is again a “must”. Let’s see some screen shots.
Here are some trades of mine. Look at AUDUSD at 19:43. I bought the currency pair for 10$ per pip.
It was the begging of a new up trend. I closed my position some minutes later and I took my profit which was 86$.