Guide to Differential Spread Betting
Clean Financial - The Financial Spread Betting Website
Differential Spread Betting

Differential Spread Betting


Where Can I Spread Bet on Differential Markets?


You can currently spread bet on differential spread betting markets with:

What are Differential Markets?


A differential market is simply the difference between two markets.

Popular differential markets include: For example, if the FTSE 100 is 5947 and the Dow is 12339 then the difference is 6392. Therefore, a spread betting company like Financial Spreads might offer a FTSE 100 - Dow differential market of 6390.0 - 6394.0.

This means Financial Spreads’ clients can spread bet on the differential getting larger than 6394.0 or getting smaller than 6390.0.

Put another way, it’s a way of trading the relative performance of the UK 100 index versus the Wall Street index.

If you feel the UK 100 index will perform better than the Wall Street index you could spread bet on the differential to decrease. Likewise if you think the Dow will perform best then you can spread bet on the differential to increase.

This is the same as going long of one market and short of the other, although with a differential trade:
  • There is only one trade. Therefore this is easier to manage
  • The combined spread of two separate trades is wider. A single differential trade offers clients a way of getting tighter spreads.
Note that the markets are monthly or quarterly futures markets and therefore they have an expiry date. The above example is a ‘June’ market so if you haven’t already closed your trade beforehand the market, and any open trades on it, will be closed and settled on the relevant expiry date in June. See the example below for more details.


Differential Spread Betting


Where Can I get Charts for Differential Spread Betting Markets?

You can get candlestick charts with spread betting companies like Financial Spreads.

As with all Financial Spreads charts, investors can alter the data to view it by the tick, by the minute, by the hour, by the week etc. There are also many other settings and options to help your technical analysis of charts.


UK 100 - Wall Street Differential Spread Betting Chart


FTSE/Dow Differential

How to Spread Bet on the FTSE 100 - Dow Differential


As with a wide variety of international markets, you can spread bet on differentials, like the "FTSE 100 - Dow differential", to rise or fall.

At the time of writing the Dow index is priced at 12339 and the FTSE 100 index is priced at 5947.

Looking at InterTrader, they are giving the FTSE 100 - Dow (June) Differential market at 6390.0 - 6394.0. This means you can spread trade on the FTSE 100 - Dow differential market:
  • Closing above 6394.0, i.e. the Dow will perform more strongly, or
  • Closing below 6390.0, i.e. the FTSE 100 will perform more strongly
On the expiry date for this 'June' market, 17-Jun-11.

Whilst spread trading on the FTSE 100 - Dow differential you trade in £x per point. As a result, if you staked £4 per point and the FTSE 100 - Dow moves 10.0 points then that would change your P&L by £40. £4 per point x 10.0 points = £40.

FTSE 100 - Dow Differential Spread Betting Example

If we think about the spread of 6390.0 - 6394.0 and assume that:
  • You have done your analysis of the indices market, and
  • Your analysis leads you to think that the Dow will perform better than the FTSE 100 and so the FTSE 100 - Dow differential will close above 6394.0 by 17-Jun-11
Then you may decide that you want to buy a spread bet at 6394.0 for a stake of £2 per point.

Therefore, you would make a return of £2 for every point that the FTSE 100 - Dow differential increases higher than 6394.0. However, it also means that you will lose £2 for every point that the FTSE 100 - Dow market goes lower than 6394.0.

Considering this from another angle, if you ‘Buy’ a spread bet then your profit/loss is found by taking the difference between the final price of the market and the initial price you bought the market at. You then multiply that price difference by the stake.

So if, on the closing date, the FTSE 100 - Dow market closed higher at 6451.5, then you would make a return of:

Profits (or losses) = (Final Level - Initial Level) x stake
Profits (or losses) = (6451.5 - 6394.0) x £2 per point stake
Profits (or losses) = 57.5 x £2 per point stake
Profits (or losses) = £115.00 profit

Speculating on differentials, whether by spread betting or otherwise, can go against you. In the above example, you had bet that the differential would increase. Of course, the market might decrease.

If the FTSE 100 had outperformed the Dow then the FTSE 100 - Dow differential would decrease and might settle lower at 6330.1. As a result you would end up making a loss and losing on this spread bet.

Profits (or losses) = (Final Level - Initial Level) x stake
Profits (or losses) = (6330.1 - 6394.0) x £2 per point stake
Profits (or losses) = -63.9 x £2 per point stake
Profits (or losses) = -£127.80 loss

Note: FTSE 100 - Dow June Differential spread quoted as of 31-Mar-11.


Financial Spreads » "With FinancialSpreads.com you get all the advantages of
Spread Betting as well as commission free CFD Trading on 2,500+ markets, 24 hour trading, professional level charts and..." read Financial Spreads review.


Brent Crude - US Crude Differential

How to Spread Bet on the Brent Crude - US Crude Differential


As with a wide range of commodity markets, an investor can speculate on differentials, like the "Brent Crude - US Crude differential", to go up or down.

At the time of writing Brent Crude is priced at $116.31 and US Crude is at $105.30.

Looking at Financial Spreads, they are valuing the Brent Crude - US Crude (May) Differential market at $10.98 - $11.04. As a result, an investor could spread trade on the Brent Crude - US Crude differential:
  • Settling above $11.04, i.e. Brent Crude will perform better, or
  • Settling below $10.98, i.e. US Crude will perform better
On the closing date for this 'May' market, 12-Apr-11.

Whilst spread trading on the Brent Crude - US Crude differential you trade in £x per $0.01. Therefore, if you invested £4 per $0.01 and the Brent Crude - US Crude market moves $0.05 then that would make a difference to your P&L of £20. £4 per $0.01 x $0.05 = £20.

Brent Crude - US Crude Differential Trading Example

Now, if we think about the above spread of $10.98 - $11.04 and assume:
  • You have done your analysis of the energies markets, and
  • You feel that Brent Crude will perform more strongly than US Crude so the Brent Crude - US Crude differential will settle higher than $11.04 by 12-Apr-11
Then you may decide to buy at $11.04 and invest, for the sake of argument, £2 per $0.01.

With such a spread bet you win £2 for every $0.01 that the Brent Crude - US Crude differential pushes above $11.04. Conversely, however, it also means that you will lose £2 for every $0.01 that the Brent Crude - US Crude market moves lower than $11.04.

Looking at this from another angle, if you ‘Buy’ a spread bet then your P&L is calculated by taking the difference between the final price of the market and the initial price you bought the market at. You then multiply that price difference by your stake.

So if, on the expiry date, the Brent Crude - US Crude differential settled higher at $11.65, then you would make a profit:

Profits (or losses) = (Closing Level - Opening Level) x stake
Profits (or losses) = ($11.65 - $11.04) x £2 per $0.01 stake
Profits (or losses) = $0.61 x £2 per $0.01 stake
Profits (or losses) = £122 profit

Trading differentials, by spread trading or otherwise, is not simple. In the above example, you had bet that the market would increase. Naturally, it could decrease.

If US Crude had performed better than Brent, with the Brent Crude - US Crude differential falling to $10.49, then you would end up making a loss and losing on this trade.

Profits (or losses) = (Closing Level - Opening Level) x stake
Profits (or losses) = ($10.49 - $11.04) x £2 per $0.01 stake
Profits (or losses) = -$0.55 x £2 per $0.01 stake
Profits (or losses) = -£110 loss

Note: Brent Crude - US Crude May Differential market correct as of 31-Mar-11.


Financial Spreads » "With FinancialSpreads.com you get all the advantages of
Spread Betting as well as commission free CFD Trading on 2,500+ markets, 24 hour trading, professional level charts and..." read Financial Spreads review.



Trading Risk Warning
'Differential Spread Betting' edited by Jenna Cutly, updated 03-Jan-17

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