How does Spread Betting work?

 

The word 'Spread' in Spread Betting refers to the difference between our selling price and our buying price. The smaller the spread, the more cost effective your trading.

If you think the price of a market is going to go up, you would place a "Buy" bet, this is also known as ‘going long’. If you think the price of a market is going to go down you would place a "sell" bet, often described as ‘going short’.

You need to choose a stake. This is the amount you want to bet for each point movement in your chosen market. So if you choose to buy at £10 per point and the market rises by 5 points you would make a profit of £50 (5 points x £10 stake). 

Core Spreads offer fixed spreads on all Spread Betting markets on the CoreTrader platform giving you confidence that your charges to open and close a trade will remain constant - even when the markets are volatile.  

The image above is an example of one our most popular markets, the UK100 cash (you will see this in the news as the FTSE100). This can easily be found on our trading platform and can be traded in a stake as low as 50p per point move of the market.

You will see two prices, the 'BID' is the price you would trade at if you thought the market was going to fall from this level, the 'OFFER' is the price you would trade at if you expected the market to rise from here. The difference between the two prices is our charge, a fixed spread of 0.8 points

Let's suppose that, having researched the market to understand the potential volatility, you decide to place a buy bet of £5 per point at a price of 7225.2.

An hour later the market has risen by 10 points and Core Spreads are now quoting a price of  7234.4  to sell and 7235.2 to buy. You decide that it's time to bank your profit and so you need to close off your earlier trade. To do this you need to place a trade in the opposite direction, so if your original trade was a buy you now need to place a sell trade for the same stake, in our example it is £5 a point.

You place a sell trade at the price of 7234.4 which closes your original trade. So how much money have you made?

This is calculated by taking the difference between the price of the second closing trade and the price of the first opening trade. In our example this is:

7234.4 7225.2
9.2
Difference

We then multiply this number by the stake of the trade, which was £5 a point, giving you a profit of 9.2 x £5 = £46

So what happens if the market moves against you? In our example, if the market had fallen by 10 points Core Spreads would have been quoting a price of 7214.4 to sell and 7215.2 to buy. Had you decided to close your trade at this time you would have placed a sell trade, remember that you need to place a trade in the opposite direction of the original, at the bid or selling price of 7214.4

This results in a difference in price of:

7214.4 7225.2
-10.8
Difference

The difference is then, again, multiplied by the stake of £5 resulting in a loss of £54.

 

In both examples the Core Spread charge, a fixed spread of 0.8 points, doesn't change. This is why it is important to trade at a competitive fixed spread allowing you to reduce your transaction costs and maximise your returns.

 

Core Spreads

Core Spreads is financial trading as it should be. No noise – just tight spreads on thousands of markets.

uk forex awards 2017

 

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