T2W Trading Community

So What is Financial Spread Betting?

Financial spread betting is a highly geared bet on the future price of a product (can be anything) either going up or down. Simple really. The real money making power lies in the leverage. Let’s look at this in more detail:

We believe that the Dow Jones Industrial Average Index (DJIA) is going to go up in the next few days. We have analysed the charts and can see that there are various key pointers that suggest this. So we go to our trading account and look at the DJIA and receive the following quote:

DJIA (March) sell @ 7475 buy @ 7485

Don't worry about the (March) comment just yet. So we think that the price is going to exceed the current quoted price. We therefore trade say £10 on the DJIA going up in the short term. This is known as GOING LONG. You are opening a trade where you expect the value of that instrument (the DJIA, in this case) to increase.

So we have staked £10 per point on the DJIA (March) going up in the short term. The next time we look at the DJIA it has reached 7595 (up 110 points) so we decide to cash in. We are closing a buying position and it is called sell to close. Because we have already bought, we need to sell to release the equity in the contract. We go to the FB’s (financial bookmakers) Internet site and receive a quote of:

DJIA (March) sell @ 7595 buy @ 7605

We sell to close that releases the following profit from the trade:

We bought: DJIA @ 7485
We sold: DJIA @ 7595
Points difference: 110 points
110 points x £10 = £1100

Not bad for making a few quick choices. I will talk more in depth about protecting your deposit by using stop loss Orders and ways of locking in profit. I just want to cover the very basics to begin with. Then we can look at using tips and tricks to limit your risk and increase your profits.

The next trade we look at is the FTSE100. We have looked at the charts and also feel that there is added strength in the argument that the FTSE100 will fall, from all the other data that we have quickly analysed. So we go to our FB website and get a quote on the FTSE100 as follows:

FTSE100 (March) sell @ 4000 buy @ 4010

From our judgment we believe that the FTSE100 will fall much lower than the current quote of 4000. So we go SHORT (SELL) the FTSE100 @ £10 per point. We have opened a trade where we expect the value to go down in value.

We wait a few days and the FTSE100 drops even lower. So we go to the FB website and get a new quote on the 'Footsie'. We are quoted the following price:

FTSE100 (March) sell @ 3590 buy @ 3600

Now this is a key thing to remember. We have opened a contract on selling at 4000 so to close the contract we need to BUY. So we BUY to close @ 3600.

FTSE100 Sold @ 4000 (SHORT)
FTSE100 Bought @ 3600 (buy to close on short)

Points difference: 400 - making you a massive tax free profit of £4000.

We have just covered the very basics of making a simple LONG trade (upward – Bull trade), and the basics of going SHORT (downward - Bear trade). To close a long trade we sell to close and to close a short trade we buy to close. Please be aware of using the word ‘sell’. It would be natural to assume that when we have traded either long or short, then to close that trade we sell it. This would seem quite natural to think that way. However, should you trade with your financial bookmaker (FB) over the telephone or the Internet, this would lead to a great deal of confusion.

For example say we have opened the previous short FTSE100 trade prior to calling our FB looking to close this trade. We call the FB and get a quote and if we said, "I wish to sell FTSE100" this wouldn't close your previous position, it would ADD to your previous short contract. The FB would ask, "What is the size of your trade sir?" and this would cause you even greater confusion. So remember:

When we expect the price to go up, we go LONG and we SELL TO CLOSE to release any profit.

When we expect the price to fall, we go SHORT and we BUY TO CLOSE to release any profit.