Need something explained on a bet please

I am keen to get into spread betting and as I have been advised by a few on this site, will soon open an account with Finspread, it being a good account to start with. But at the moment I am playing with Capitalspreads DEMO account to learn a little.

The other day I got a little confused, maybe someone here can explain.

I decided to buy 50 Nikkei 225. I had done ok so far on the FTSE, so my trading resources were at about £10,800, but soon after I made this bet suddenly my trading resources showed (4,200), which I take meant I was minus £4,200. I cannot understand this figure. Surely if I bet £50 per point even if it moved 50 point that would only be 50x50 = £2,500 so what was going on, I'm lost?

Secondly I bought this Index at £1605 and later noticed it had risen, above what I paid, but when I tried to set the stop above my buy price to lock my profits in, it would not let me set the stop so high so I could not lock the profits. I assume this is to stop you making a profit so easily so that the spread betting company have a chance at getting a profit out of you. Similarly I could not set a very tight limit, I assume for the same reason.

But I wanted to get out and take my profits as I felt I had gone in too heavy. At this point I remembered that I had read, that to close an open bet you can put an equal opposite bet in, so I did and within seconds the bets closed and my trading resources went back from (4200) to about £7000. Can anyone explain to me firstly what happened here to make such a change in my trading resources. And secondly if I am right about the spread betting companies restricting your stops and limits, whats the point, if when you cant get out that way, you can simply put in a opposite bet and get out that way instead?

I'm sure I am missing something obvious here but need a little help.

Whats the difference in the spread between the FTSE and NIKKEI with captialspreads?

Sounds about right HHH. On Finspreads the 'margin factor' for the Nikkei is 500x - so in other words you need 500x your bet in your account as 'trading resources', or in your case for a £50 bet - £25k. Capital have charged you £15k, so presumably they run a 300x margin factor for the Nikkei. The margin factor is all about expected volatility - think about it: the Nikkei is about 16,300 at the moment? The 50 point move you talk about would be less than a 0.3% move in the index - easily within the range of an hours trading, let along a day. They just want to make sure you have enough money up front to be able to settle at least a day or so move going against you. Or put another way, £50/point on a 16,300 level index is equivalent to an underlying position of £815,000. Put that like, requiring you to put up £15k of your own money isn't too unreasonable...!

I don't know about your other question because I don't know the details- but a lot of spread firms require you to put in a decent gap between the current quote and your stop - I would guess you had not done that.

happyhappyhappy said:

I decided to buy 50 Nikkei 225. I had done ok so far on the FTSE, so my trading resources were at about £10,800, but soon after I made this bet suddenly my trading resources showed (4,200), which I take meant I was minus £4,200. I cannot understand this figure. Surely if I bet £50 per point even if it moved 50 point that would only be 50x50 = £2,500 so what was going on, I'm lost?

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The margin required for a bet of the size probably took you into the red. If Nicky is say 15000 then your £50 per point bet = £750,000 notional value. Margin probably works out at about 50:1 so you'd need 15,000 in your a/c to cover the bet. This requirement is irrespective of where you set your stop. Imagine if Junichiro Koizumi was assassinated while Nikkei was closed. Your 50 point stop would be "pounded like a rented gerbil" when the market opened. The margin requirement goes some way to protect against this. With a real account I imagine you would not have been allowed to place that size bet without the necessary spons to cover the margin.

Secondly I bought this Index at £1605 and later noticed it had risen, above what I paid, but when I tried to set the stop above my buy price to lock my profits in, it would not let me set the stop so high so I could not lock the profits. I assume this is to stop you making a profit so easily so that the spread betting company have a chance at getting a profit out of you. Similarly I could not set a very tight limit, I assume for the same reason.

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Unfortunately SB companies usually stipulate a minimum stop and limit distance from current price.

Edit: Jacko beat me to it, adeptly as ever.

Thanks guys for the answers but how do I find out what the margin is on a particular index, ie say I decide to bet on the FTSE100 how will I know what the spread betting companies's margin is? It should be something that is staring you in the face as you make any bet, so that you know what you need in your account, is it?

Also does it vary much if at all between spread betting companies?

Why do a lot of spread firms require you to put in a decent gap between the current quote and your stop, since if you dont you will just knock yourself out quick and they make on the spread anyway or am I confused?

For a start try Googling "capital spreads margin"?

To save you the immense trouble of doing so :

http://www.capitalspreads.com/generic/support07.shtml
http://www.capitalspreads.com/downloads/specifications.pdf

Failing that it will be listed in the trading manual you receive (hard copy or more usually a .pdf or link these days) when you open an account.

Nikkei = 300 IMR (initial margin) = 300 x £50 for your bet above - £15,000 required.

Why do a lot of spread firms require you to put in a decent gap between the current quote and your stop, since if you dont you will just knock yourself out quick and they make on the spread anyway or am I confused?

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They probably work on the principle that since most customers are losers it is in their interest to force them to have wider stops, thus increasing the company's profit per trade. In addition their selectively slow quote / execution algorithms probably get confused by tight stops in a fast market, thus eliciting numerous complaints from angry punters thus adding to customer service personnel budget. Remember a SB company is not a fair market it is a ruthlessly streamlined business designed principally to extract money from the greatest number of people as quickly and as cheaply as they can get away with. If they demand loose stops, you know they've found an edge in doing so.

I'm sorry, I don't mean to be unkind, but trading is not a game to rush into unprepared, least of all with an SB firm. Find out everything you can about how your chosen SB company's rules work and apply to you. Margin, overnight interest, types of stops, limits, spreads, difference between rolling cash and futures, what happens when a position requires more margin to keep it open, rollover protocol etc. It will all be in the manual. They deliberately don't have the small print staring you in the face because they'd much rather you rushed in and punted away. Someone who bungs £50 on the Nikkei with a stop they suppose protects them against anything and then wonders why they get a margin call 10 mins later is their dream customer. Please don't be him/her. If this all sounds horribly demoralising remember they can be beaten - just be aware of whom you are playing against and how they operate, down to the finest detail.

Cheers for the rep HHH and sorry if I came across as a bit savage. I merely speak as one who has been there and wish I'd been more prepared before diving in.

Cheers frugi, appreciate your comments and I am now dijesting the links you gave. That thing with the Nikkei I would never do for real, I was just playing as it was only a demo account, but it has taught me something as I didn't expect the reaction on my trading resources that I got hence all these questions.

Also hopefully opening a Finspread account and being able to bet a penny a point, I will be able to learn without suffering too much damage.

No worries. You should be commended for actually using the demo to figure things out - believe it or not there are many who don't even take this precaution, probably those fresh and glowing from a Greg Secker mental massage and clearly well on the way to their first million.

happyhappyhappy said:

Thanks guys for the answers but how do I find out what the margin is on a particular index, ie say I decide to bet on the FTSE100 how will I know what the spread betting companies's margin is? It should be something that is staring you in the face as you make any bet, so that you know what you need in your account, is it?

Also does it vary much if at all between spread betting companies?

Why do a lot of spread firms require you to put in a decent gap between the current quote and your stop, since if you dont you will just knock yourself out quick and they make on the spread anyway or am I confused?

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You can also find the margin required on their rules, terms and condtions part of their website.

happyhappyhappy said:

Thanks guys for the answers but how do I find out what the margin is on a particular index, ie say I decide to bet on the FTSE100 how will I know what the spread betting companies's margin is? It should be something that is staring you in the face as you make any bet, so that you know what you need in your account, is it?

Also does it vary much if at all between spread betting companies?

Why do a lot of spread firms require you to put in a decent gap between the current quote and your stop, since if you dont you will just knock yourself out quick and they make on the spread anyway or am I confused?

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On Capital Spreads, there are 3 buttons on the right of each contract's ticker, just to the right of the 'order' and 'trade' boxes. Click the middle one, and it will give you the contract info, including margin.

happyhappyhappy said:

Thanks guys for the answers but how do I find out what the margin is on a particular index, ie say I decide to bet on the FTSE100 how will I know what the spread betting companies's margin is? It should be something that is staring you in the face as you make any bet, so that you know what you need in your account, is it?

Also does it vary much if at all between spread betting companies?

Why do a lot of spread firms require you to put in a decent gap between the current quote and your stop, since if you dont you will just knock yourself out quick and they make on the spread anyway or am I confused?

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Press the "i" button. The margin is shown per 1 pound. Ican tell you that rolling footsie is 100 pounds.

Split

If you open without enough margin, they will refuse you and, also, tell you the level that you can trade with the cash that you have available
Split

Ok thanks for all that and understand it better now but I afraid I am lost again.

After that crazy bet I put a few bets on only betting £5 a point on rolling FTSE and S&P 500
to rise withs tops set etc. I couldn't watch them so I left them running with the stops and limit prices where I was happy thinking I had been more sensible and most importantly more realistic, but I come back today to find my trading Resources at (26494.58) ie minus a load.

What on earth has happened?

I notice something odd which maybe the clue S&P 500 seems to have sold at 677 but how?

My stop was in quite near the live price at the time which was about 1360 roundabout, which is roughly where the price is now. So how did it get to 677 for a start and also why did my stop not sort that out if it dipped so violently?

Its like a mad axe man has run riot through my account whilst I wasn't watching for one day. I would appreciate any help with this. Just when I feel I'm learning, something crazy happens, and puts severe dents in my confidence.

Please explain more clearly. This 26494 pounds is on a CS demo account, right? Yesterday the SP went up 12 points.

Split

Splitlink said:

Please explain more clearly. This 26494 pounds is on a CS demo account, right? Yesterday the SP went up 12 points.

Split

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Yes but when I go to my trade history to see what happened it shows under the column marked price, 677.0, which seems to be the price the deal was dealt but its so far away from the S&P
500 price. I also got an email which says this "Sell 5 of S&P 500 Rolling Daily at 677.0".

Even if you assume I have no idea what I am doing, does this email not show that something crazy happened?

If it helps at all, that email came in at 08:33 on 13/10/2006, but I was out yesterday so did not see it until the evening.

I realise you cannot know every tiny detail about what I have been doing in my account that might cause something odd to happen but surely this email's transaction details alone are very odd and look very strongly to be the cause. How could S&P500 ever have anything to do with a figure like 677?

Please help me Splitlink, I think they are trying to make me think I'm going mad when I'm at my weakest.

happyhappyhappy said:

Yes but when I go to my trade history to see what happened it shows under the column marked price, 677.0, which seems to be the price the deal was dealt but its so far away from the S&P
500 price. I also got an email which says this "Sell 5 of S&P 500 Rolling Daily at 677.0".

Even if you assume I have no idea what I am doing, does this email not show that something crazy happened?

If it helps at all, that email came in at 08:33 on 13/10/2006, but I was out yesterday so did not see it until the evening.

I realise you cannot know every tiny detail about what I have been doing in my account that might cause something odd to happen but surely this email's transaction details alone are very odd and look very strongly to be the cause. How could S&P500 ever have anything to do with a figure like 677?

Please help me Splitlink, I think they are trying to make me think I'm going mad when I'm at my weakest.

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I can't see how this can be anything other than an error on their part. I suggest that you ring them on Monday, asking for an explanation and also to put the account balance back to where it should be.

Fins closing quote for Friday was 1365.5-1366.1.

If you open an account with Fins please take my advice and put no more than 150 pounds in it as a starting balance (100 pounds is sufficient). That way, the margin limit will prevent you from overtrading while you are learning the ropes and will not create a serious nuisance for you to retire the balance if you decide to change companies.

I don't have shares in Fins and there may be better SB companies about, that is for you to discover, but I think that their method of allowing newcomers to trade at a few pence a point and the use of a realtime chart service is a plus, better than the demo system used by others.

Split

Cheers Split, that's what I was thinking, must be an error, since it seems to make no sense, hope thats what it is and not some crazy deal instruction I managed. I will post what happened back here. Yes I will probabl;y stick to the £100 after that scare.

Well I'm not going mad after all, this was the reply I got from Capital spreads

Thank you for your email.

I can confirm that this was a rouge figure that went though our demo account, but I can assure you that this did not happen on the live account.

Therefore, I have re-credited your account with the loss made on that trade.

We apologise for any inconvenience caused.

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Does make you worry though, when you use them for real. I'm back to nearly £8000 in credit again. I would worry that they would make little mistakes as well, now, that may not be spotted and end up taking little chunks out of my balance all the time. I'll have to make sure I do my math's accurately on every deal so that I can check their figures or, who ever I use.

Out of interest Split, with all the deals you have done, have you ever found that they ever mess up like this or smaller with your accounts, or are they always spot on? My normal share dealing account is always spot on which is how it should be.

happyhappyhappy said:

Well I'm not going mad after all, this was the reply I got from Capital spreads




Does make you worry though, when you use them for real. I'm back to nearly £8000 in credit again. I would worry that they would make little mistakes as well, now, that may not be spotted and end up taking little chunks out of my balance all the time. I'll have to make sure I do my math's accurately on every deal so that I can check their figures or, who ever I use.

Out of interest Split, with all the deals you have done, have you ever found that they ever mess up like this or smaller with your accounts, or are they always spot on? My normal share dealing account is always spot on which is how it should be.

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No, Happy, Fins have never made a mistake with the account. You can always do your sums on the spot and check it on the account displayed on the trading platfom. I don't bother with the emails.

Be careful with the stop and exits, though. If they do something funny, it will be there, IMO

Split