Buying in a rising market

If you think that the price of a particular financial instrument will strengthen (rise in value), you can go long by buying at the current price with the intention of selling it later at a higher price. You will make a profit if you do so and if the markets move in this direction. The price that you buy at is called the opening trade price while the price that you sell at is called the closing trade price. Spread Trading is not without risks though. If you are incorrect and the price of the market falls before you close the trade, you will incur a loss.

 

Selling in a falling market

If you think that the price of a particular financial instrument will weaken (fall in value), you can go short by selling at the current price with the intention of buying it back later at a lower price. You will make a profit if you do so and if the markets move in this direction. If, however, you are incorrect and the price of the financial instrument rises before you close the trade, you will incur a loss.

 

The Spread

The spread, also known as “the dealing spread” or “the buy / sell spread”, is the difference between the prices at which you can buy and sell the financial instrument.

 

The spread is how market makers such as Spread Co are compensated for creating a market for you to trade. A wide or large spread is more expensive to you. A narrow or small spread is cheaper to you.

 

The size of the spread represents how much the market must move in your favour before you begin to make a trading profit. You buy at one end of the spread and sell at the other end of the spread. If the spread moves far enough in your favour, you will begin to make a profit. If it doesn't, you will incur a loss.

 

Spread sizes vary by instrument depending on:

• the liquidity of the underlying instrument
• the volatility of the underlying instrument
• for equities, the amount of freely traded shares that exist for the underlying company being bought or sold

 

Range of Markets

Spread Trading enables you to trade both the up and down movements in a wide variety of financial instruments. Because you are not actually buying or selling the underlying instrument, the range of instruments that you can trade in can be far greater than the physical markets. You can Spread Trade on markets including, but not limited to:

 

• Stock market indices such as the UK100 or US30
• Individual shares from the UK100, US30 and GERMANY30
• Currencies (Majors such as EUR/USD, GBP/USD and Crosses like EUR/JPY, GBP/CHF)
• Commodities such as Crude Oil and Soya Beans
• Bullion such as Gold and Silver

 

Each of these market types can be traded for different periods; a spot contract (today’s prices) and at least one forward contract (future prices).