How to Spread Bet on Shares
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How to Spread Bet on Shares and Stocks - an introduction to equities trading. If you are looking for stocks and shares trading information, you're on the right website.
How to Spread Bet on Shares
Shares Spread Betting
How to Spread Bet on Shares: Buying Barclays March Example
It is now November and a Spread Betting firms quote for Barclays March might be 710 to 715. If you believe that the share-price will rise over the next months, you would "buy" at 715. You need to decide your stake. For this example, let's say you choose a stake of £2 per penny movement.
This means that you will receive £2 for every penny the share price rises. If the future equities quote for Barclays rises for example to 750 - 755 you may decide you want to close your position to realise the profit.
An equal sized Sell bet always closes a buy bet, and vice versa. Alternatively, you can leave the bet to expire in March, when your bet will be automatically closed.
Barclays March Scenario 1 - Closing the Bet
Let's say the market does rise and there's a quote of let's say 745 - 750. You can leave your bet running or close it by selling at 745 for £2 per point. This may be the time to lock in your profit by closing the bet.
Your profit is calculated by calculating the difference between the closing level (745) and the opening price (715) and multiplying by the stake. Note that because you have closed the bet it doesn't matter where the market settles in March.
Profit = (745 - 715) x £2 per point stake
= 30 points x £2 per point = £60 profit
Barclays March Scenario 2 - Letting the bet run
Let's say the market does rise and there's a quote of let's say 745 - 750. However you think you're on to a good thing and you let it run. However the market decides 745 - 750 is too high and sellers push the price back to 725 at the end of March. If that happens, your bet is automatically closed at 725.
Your profit is calculated by calculating the difference between the closing level (725) and the opening price (715) and multiplying by the stake.
Profit on day = (725 - 715) x £2 per point stake
= 10 points x £2 per point = £20 profit
Barclays March Scenario 3 - Fall in share price
Of course the Barclays price could have gone down after you bought at 715. If it closes below 715 you will make a loss. Let's say there's some bad news for Barclays and the profits aren't as high as expected. The market reacts negatively. As a result the shares fall and they close in March at 695
Your profit is calculated by calculating the difference between the closing level (695) and the opening price (715) and multiplying by the stake.
Profit / Loss = (695 - 715) x £2 per point stake
= -20 points x £2 per point = - £40 loss
Barclays market quoted as of 7-Nov-06.
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How to Spread Bet on Shares: Siemens Rolling Daily Example
If an investor wants to speculate on companies such as Siemens then one solution is to spread trade on the Siemens share price.
If you were to look at the Financial Spreads spread trading website, they are giving the Siemens Rolling Daily market at €90.90 - €91.13. This means you could spread trade on the Siemens shares:
- Rising above €91.13, or
- Falling below €90.90
When placing a spread bet on German equities you trade in £x per cent. So, if you risked £2 per cent and the Siemens share price moves €0.10 then that would alter your P&L by £20. £2 per cent x €0.10 = £20.
Note that you are also able to trade this market in Euros or Dollars, e.g. €x per cent.
Rolling Daily Equities Markets
One important thing to note is that this is a 'Rolling Daily Market' and therefore unlike a futures market, there is no closing date. As a result, if your trade is still open at the end of the trading day, it will simply roll over to the next session.
If your position is rolled over and you are speculating that the market will:
- Go up - then you are normally charged a small financing fee, or
- Go down - then a small payment will usually be credited to your account
For more information on Rolling Daily Markets, and a fully worked example, please see Rolling Daily Spread Betting.
Siemens Rolling Daily - German Equities Trading Example
So, if we think about the spread of €90.90 - €91.13 and assume:
- you have done your market research, and
- you feel that the Siemens shares look like they will push above €91.13
then you might decide to go long of the market at €91.13 for a stake of £1 per cent.
So, you make a profit of £1 for every cent that the Siemens shares move higher than €91.13. Conversely, however, it also means that you will make a loss of £1 for every cent that the Siemens market decreases lower than €91.13.
Thinking of this in a slightly different way, if you were to ‘Buy’ a spread bet then your P&L is worked out by taking the difference between the final price of the market and the initial price you bought the spread at. You then multiply that difference in price by the stake.
As a result, if the shares moved higher then you could consider closing your position to secure your profit.
Therefore, if the market moved up then the spread, set by the spreads firm, might be adjusted to €92.41 - €92.64. You would close your position by selling at €92.41. Therefore, with the same £1 stake you would make:
Your P&L = (Closing Level - Initial Level) x stake
Your P&L = (€92.41 - €91.13) x £1 per cent stake
Your P&L = €1.28 x £1 per cent stake
Your P&L = 128c x £1 per cent stake
Your P&L = £128 profit
Financial spread trading on shares doesn't always work out as you would have liked. In this case, you wanted the share price to go up. Nevertheless, it might go down.
If the Siemens share price decreased, contrary to your expectations, then you might choose to close your trade in order to restrict your losses.
Should the spread fall back to €89.76 - €89.99 then you would sell back your position at €89.76. That would mean you would lose:
Your P&L = (Closing Level - Initial Level) x stake
Your P&L = (€89.76 - €91.13) x £1 per cent stake
Your P&L = -€1.37 x £1 per cent stake
Your P&L = -137c x £1 per cent stake
Your P&L = -£137 loss
Note - Siemens Rolling Daily spread betting price quoted as of 07-Jun-11.
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How to Spread Bet on Shares: Apple Rolling Daily Example
Looking at the Financial Spreads spread betting website, they are showing the Apple Rolling Daily market at $334.17 - $334.58. This means an investor can spread trade on the Apple share price:
- Increasing above $334.58, or
- Decreasing below $334.17
When spread trading on S&P 500 equities you trade in £x per cent. So, if you choose to risk £2 per cent and the Apple share price moves $0.25 then that would change your profits (or losses) by £50. £2 per cent x $0.25 = £50.
You are also able to invest in this market in Dollars or Euros, e.g. €x per cent.
Rolling Daily Equities Markets
An important aspect of this Rolling Daily Market is that there is no closing date for this market. As a result, if your trade is still open at the end of the trading day, it just rolls over into the next session.
If you do roll over a position and you are spread betting that the market will:
- Rise - then you will usually be charged a small overnight financing fee, or
- Fall - then a small payment is often credited to your account
To learn more please read Rolling Daily Spread Betting.
Apple Rolling Daily - US Equities Trading Example
Now, if we consider the above spread of $334.17 - $334.58 and assume that:
- you have done your market analysis, and
- it leads you to think that the Apple share price is likely to move higher than $334.58
then you could go long of the market at $334.58 and invest, let’s say, £1 per cent.
This means that you win £1 for every cent that the Apple shares increase and move above $334.58. However, such a bet also means that you will make a loss of £1 for every cent that the Apple market goes lower than $334.58.
Thinking of this in a slightly different way, if you ‘Buy’ a spread bet then your profit/loss is calculated by taking the difference between the settlement price of the market and the initial price you bought the spread at. You then multiply that difference in price by your stake.
As a result, if the share price rose then you might consider closing your trade in order to secure your profit.
So if the market increased then the spread, set by the spreads firm, might be adjusted to $336.09 - $336.50. In order to close your trade you would sell at $336.09. Therefore, with the same £1 stake your profit would be:
Profit / loss = (Settlement Price - Opening Price) x stake
Profit / loss = ($336.09 - $334.58) x £1 per cent stake
Profit / loss = $1.51 x £1 per cent stake
Profit / loss = 151¢ x £1 per cent stake
Profit / loss = £151 profit
Trading equities, whether by spread trading or otherwise, is not simple. With this example, you had bet that the share price would go up. Naturally, the share price can also decrease.
If the Apple stock decreased, contrary to your expectations, then you might choose to close your trade to stop any further losses.
So if the spread pulled back to $332.91 - $333.32 then you would close your trade by selling at $332.91. That would mean you would make a loss of:
Profit / loss = (Settlement Price - Opening Price) x stake
Profit / loss = ($332.91 - $334.58) x £1 per cent stake
Profit / loss = -$1.67 x £1 per cent stake
Profit / loss = -167¢ x £1 per cent stake
Profit / loss = -£167 loss
Note - Apple Rolling Daily spread betting market taken as of 07-Jun-11.
Financial Spreads >>
"With FinancialSpreads.com you get all the normal
advantages of Spread Betting plus..." >> read
Financial Spreads review.
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Shares Betting Markets
Each company will have their own specific online finance markets however a number of the companies will offer most, if not all, of the following:
Spread Betting Companies?
If you're looking for places to spread bet on a variety of financial markets - have a look our spread betting companies comparison.
Financial Spreads >>
"With FinancialSpreads.com you get all the normal
advantages of Spread Betting plus..." >> read
Financial Spreads review.
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How to Spread Bet
How to spread bet on Bonds and Interest Rates
How to spread bet on Commodities
How to spread bet on Forex
How to spread bet on Shares
How to spread bet on Stock Market Indices
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'How to Spread Bet on Shares' by JW, updated 22-Dec-11
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