BASICS: Spread betting

[VicZA]

Hi All,

Very newbie questions here.

I understand the concept of spread-betting and also understand how the gains/losses are calculated but just trying to understand some of the basics of online spread betting, so please bear with me if this is VERY basic:

1 - Regarding costs: when a website says that each execution of an order costs £x.00, or x.xx% is that:
(a) cost to "place a bet"?
(b) cost to "close a bet"?
(c) cost for each of the above?

2 - Regarding costs: what other costs are there - I assume commission as a percentage of gains? and for losses? other costs?

3 - Regrading opening and closing a bet: how long can you keep a bet open? is there a minimum and maximum limit? and does it cost more to keep a bet open for longer or shorter

4 - Is it possible to try out this spread betting with no risk on these websites, including the simulation of "site costs" in order to get a clear picture of what can be expected?

That's it for now
Thanks in advance.

 

[Hoggums]

1. Usually there are no costs associated with opening/closing a trade in SB other than the spread - the difference between buy & sell price If you see a broker who charges for each trade stay well clear.

2. Costs depend on what kind of trade you have open. If it's a future or binary then there will be no costs deducted from your account, however in the case of a future the price will slowly increase/decrease over time to take account of interest & dividends.

If it's a spot forex or index cash trade then you will be deducted a small amount every day which is the interest charge on the money you are "borrowing" to open the position. e.g, if you buy £1 per point on EUR.GBP then you are "borrowing" £10000 from the broker to buy some euros. you will be charged interest on this £10,000 everyday - which is usually the difference between the EUR interest rate and the GBP interest rate + a bit extra decided by the broker.

If you have a long cash index position open then you will recieve dividends on a weekly basis. However if you are short then you will have to pay those divis to the broker every week.

3. I don't know of a broker that will not let you keep a position open as long as you want - but as explained above - you pay for it. You will also have a portion of your money "locked" while the position is open too - this is called margin. It's usually a percentage of total trade size - so if the margin on your £10000 EURGBP trade is 0.5% you will have £50 margined in your account.

4. I don't know any reputable SB firms that don't allow you to open a demo trading account for free where you can trade as much as you like with no risk and I only know IGs platform and it simulates all the costs of a live account.

 

[tomorton]

1, 2 - Each firm will set out their charges and spreads, though you often have to hunt for full info on charges. To be honest, the costs of spreadbets should not be your major consideration. There are other advantages to SB and disadvantages to other means of access that make them acceptable. But there are specific issues too - its possible SB leverage will be greatly reduced at some point by FCA regulations; don't try day-trading with SB, this usually leads to wipe-out.

3 - There is no time limit but there is simply no point spreadbetting a share for the same length of time you would hold the share as an investment.

4 - Any decent SB firm will offer you a demo account free of charge.

Whoever you use, make sure they are -
UK-based
FCA regulated
have segregation of clients' funds
have membership of the deposit protection scheme (protects you up to £50k I believe).

 

[VicZA]

thanks for the info gents ... will do some more investigating. Appreciate the help.

 

[VicZA]

a few other things I have been thinking about:

(1) is it possible to leave an account without any active trade and just leave it dormant for a while - it may sound like a strange question but I sometimes go do volunteer work in remote parts of Africa where there is no signal for wifi or mobile so I could be "out of touch" for some time and with the way SB work, I would hate to come back to a HUGE negative suprise

(2) is there a minimum amount that you need to start a live account with or does that depend on the broker site?

(3) is there a way to limit your negative risk - say I wanted to cap my losses at a max of £10k ... how do I do that? especially with the fact of the "borrowing" scenario as explained by Tomorton above

Thanks

 

[mpups]

Hi All,

Very newbie questions here.

I understand the concept of spread-betting and also understand how the gains/losses are calculated but just trying to understand some of the basics of online spread betting, so please bear with me if this is VERY basic:

1 - Regarding costs: when a website says that each execution of an order costs £x.00, or x.xx% is that:
(a) cost to "place a bet"?
(b) cost to "close a bet"?
(c) cost for each of the above?

2 - Regarding costs: what other costs are there - I assume commission as a percentage of gains? and for losses? other costs?

3 - Regrading opening and closing a bet: how long can you keep a bet open? is there a minimum and maximum limit? and does it cost more to keep a bet open for longer or shorter

4 - Is it possible to try out this spread betting with no risk on these websites, including the simulation of "site costs" in order to get a clear picture of what can be expected?

That's it for now
Thanks in advance.

Hello Viczy

You are getting way too confused about spreadbetting dude. All you need to know is that the cost is in the "spread" and the "financing". Understand these two things as well as the most important thing - RISK - and then get to work on cranking out some profits (but not necessarily using spreadbetting )

 

[tomorton]

a few other things I have been thinking about:

(1) is it possible to leave an account without any active trade and just leave it dormant for a while - it may sound like a strange question but I sometimes go do volunteer work in remote parts of Africa where there is no signal for wifi or mobile so I could be "out of touch" for some time and with the way SB work, I would hate to come back to a HUGE negative suprise

(2) is there a minimum amount that you need to start a live account with or does that depend on the broker site?

(3) is there a way to limit your negative risk - say I wanted to cap my losses at a max of £10k ... how do I do that? especially with the fact of the "borrowing" scenario as explained by Tomorton above

Thanks

1 - Never done this. I suspect you'd get an email from the firm before anything more drastic happened.

2 - Depends on the firm but counter-intuitively the smaller the account capital the harder it is to minimise losses per trade. (Recognise that you cannot avoid losing trades, they are baked into every strategy.)

3 - Limit loss per trade with a stop-loss. This is triggered if price goes against you and hits this level. It can be missed if the market gaps past your stop price so a guaranteed stop-loss can be bought when you open the trade which avoids this risk: GSL's are normally too expensive to use as a routine on every trade but might be applicable in certain situations: as a new trader you should not look to be in these anyway.

 

[mpups]

a few other things I have been thinking about:

(1) is it possible to leave an account without any active trade and just leave it dormant for a while - it may sound like a strange question but I sometimes go do volunteer work in remote parts of Africa where there is no signal for wifi or mobile so I could be "out of touch" for some time and with the way SB work, I would hate to come back to a HUGE negative suprise

(2) is there a minimum amount that you need to start a live account with or does that depend on the broker site?

(3) is there a way to limit your negative risk - say I wanted to cap my losses at a max of £10k ... how do I do that? especially with the fact of the "borrowing" scenario as explained by Tomorton above

Thanks

1 yes but double check with provider
2 yes - check with provider
3 usually the best protection you have is "guaranteed" stop loss - check provider terms/conditions

General info questions you can simply ask the provider or find on their website

 

[trendie]

Just offered this up to a newbie, thought it might be of general use.
(I dont have any affiliations with Admiral Markets (!!), just thought the online lessons would help add flesh to the bones, if you're new.)

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