Financial Spread Betting allows you, an investor, to trade on the directional movement of the price of a financial instrument. You will have to indicate an amount you want to trade on each point movement. For each point movement that the price of the financial instrument moves in your favour, you make a profit. If the price of the financial instrument moves against you, you will make a loss.
When you trade on the price of the financial instruments, you do not actually own the underlying asset. However, you are entitled to some of the benefits, such as dividends, rights issues etc, as if you were an owner of the underlying asset. The main difference is that you will not receive any voting rights on individual equities.
When you are holding a "long" trade on an individual equity, you will receive a credit adjustment in your trading account if a dividend is issued on the physical equity. The adjustment is equivalent to 90% of the net dividend payment due on the underlying equities. On the other hand, if you are holding a "short" trade on an individual equity, there will be a debit adjustment which is equivalent to 100% of the net dividend. Other corporation actions such as bonuses and stock splits will also be adjusted according to the underlying equities.
For each of your open trades, Spread Co will require you to place a deposit known as ‘margin’. Because you do not have to pay the full amount of your trade size, Spread Betting allows you to increase the amount of exposure to a financial instrument through leverage. This means you can place a larger trade than if you traded using simply the funds you placed in your account. Leverage has the effect of magnifying the profits or losses on your trading capital. The maximum amount of leverage available to you varies with the instrument you are trading.
If you wish to place a trade, you will need to place a ‘deposit’ in respect of each open trade in your account. These ‘deposits’ are also known as ‘margin’. The margin for opening a Spread Bet for all trades other than those with an attached guaranteed stop order depends on two variables:
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Notional Trade Requirement (NTR)
The NTR is actually a risk factor applied to each financial instrument. This factor varies according to the liquidity and the volatility of each financial instrument. Markets which have higher liquidity and lower volatility generally have a lower NTR.
The NTR for indices, foreign exchange, commodities and bullion is the risk factor applied to the relevant financial instrument. The NTR for equities is a percentage of the notional value of your trade. Details of the actual NTR can be found on the trading platform.
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Stake
When you place your trade, you will need to decide on how much you wish to trade per point. You can trade £1, £3 or £5 per point on any financial instrument. This amount is known as a stake. You can also choose to trade in USD or Euros.
Your stake is a per unit stake, as opposed to a fixed stake. The size of your stake determines how much you make or lose for one unit movement in the price of a financial instrument. The more the price of the financial instrument moves in your favour, the more profit you make and similarly the more the price moves against you, the more you lose. For this reason, it is important you understand that if the price of the financial instrument moves substantially in the opposite direction, your losses can increase considerably.
Margin for Indices, Foreign Exchange, Commodities and Bullion Trades
The margin for indices, foreign exchange, commodities and bullion trades without attached guaranteed stop orders is derived by multiplying the Notional Trade Requirement (NTR) by your stake.
For indices, foreign exchange, commodities and bullion trades with attached guaranteed stop orders, the margin requirement is equal to the maximum loss that you can incur on that trade.
Example
NTR for the UK100 = 30
You wish to buy the UK100 with a stake of £5 per point
Margin required will be = NTR x Stake
= 30 x 5
= £150
Margin for Individual Equities
For equity trades without attached guaranteed stop orders, margin is calculated by multiplying the NTR by the stake by the trade price for the relevant equity.
For equity trades with attached guaranteed stop orders, the margin requirement is equal to the maximum loss that you can incur on that trade.
Example
NTR = 10%
You wish to buy British Airways with a stake of £5 per point
British Airways is trading at 234.80/235.05
Margin required will be = Trade price x Stake x NTR
= (235.05 x £5) x 10%
= £117.53
A margin call occurs when there is insufficient funding in your account to cover your open trades with the necessary margin. This happens if your account valuation falls below the margin requirement. Limited Risk Account holders will not receive margin calls.
You will be emailed every four hours to inform you that you are on margin call. However please note, margin call emails are not sent out of market hours.
If you are on a margin call, you must top up your account with cash or close your open positions to reduce your margin requirement.
If you don't top up your account or reduce your open positions, one or more of your trades will be closed in order to bring the margin level in your account up to the required level for the remaining open trades.
No. Spread Bets are cash settled.
There are two main ways in which you can profit from Spread Betting:
- Buy at one price then sell at a higher price
- Sell at one price then buy at a lower price
The two main ways to lose through Spread Betting:
- Buy at one price then sell at a lower price
- Sell at one price then buy at a higher price
Liquidation is the forced closure or reduction of your open trades. Liquidation occurs when your resources fall significantly below the level required to maintain your margin requirements.
Your trading account is subject to a liquidation process if your account valuation falls below a percentage of the margin requirement (liquidation level) which is required to support your open trades.
The open trades which require the largest margin requirement will generally be liquidated first
The liquidation engine will cut the open trade with the largest margin requirement. A liquidation trade will be inserted to close the open trade at market price. Trades will be automatically matched based on a FIFO basis.
Note: Liquidation will not occur on trades which have linked stop losses.
No, there will be no extra charge if you get liquidated. You will be subject to the normal cost for Spread Betting.
The liquidation process will stop only when account valuation is more than the margin requirement.
There is no minimum account balance which is pre-set. However, you must maintain sufficient deposited funds in your account to cover the NTR for your open positions, or you will face liquidation of one or more positions.
Yes your open trades are marked-to market with real time mid prices.
The open profit/losses is the real time value of the profit/losses on open trades.
The closed profit/loss is the day’s realised profit/losses. It is the profit/loss that is derived after you close off your trades.
A Limited Risk Account is one in which a guaranteed stop order will automatically be created for every trade opened.
To learn more about Limited Risk Accounts, please click here.
You may hold on to your trades for as long as you like (provided your trade is not liquidated). This is subject to a period of three years.
Trading resources shows the funds that are available for entering into additional trades. It is the difference between account valuation minus margin requirement.
Account valuation is the aggregate of cash balance + open profit/loss + closed profit/loss.
The minimum stake size depends on the instrument, and is typically one unit for any share, index or commodity or bullion. See Market Info for further details of minimum stake sizes with Spread Co.
There is effectively no maximum stake size which Spread Co will trade with you. However, trades of large stake sizes may be more expensive for you to enter into than normal size trades.
You can trade at any time (24 hours) between 10pm (London Time) on Sunday evening and 10pm (London Time) on Friday evening. You will not be able to trade outside of these hours.
