subject: Simple Introduction To Financial Spread Trading [print this page] Financial spread trading, also called spread betting provides investors a tax free instrument to speculate upon financial market movements whether they are rising or falling. It also permits for the trading of commodities, indices, currencies, precious metals, bonds, in addition to equities all from one account. This is a derivative product which basically means that the rates you are trading on are derived from the underlying product. The actual spread would be the difference between the price you buy and the price you can sell at.
When the trader is ready to place their wager or position they will go long or short depending on what they feel the market will do next. If the market movements are in their favor then they will profit; if the market movements do not go in their favor then they will lose.
Spread betting makes use of a margin (Initial Margin Requirement); the trader will only need to deposit a certain percentage of the exact position, which is set by the broker. By using this leverage the traders opening deposit will allow for more exposure to a larger portion of the underlying market. Because of this a trader can actually incur losses which will be over their initial deposit.
To safeguard the funds within your account it is very important to establish your stop loss or stop win order. A stop loss will close your position automatically according to the order when at loss. A stop win really does virtually the same as the stop loss except when in favor.
In financial spread trading the bet can be created as a 'Daily Bet, 'Rolling Bet' or 'Contract Month'. When starting a daily bet it is going to close at the end of the trading day which t had been opened. A rolling bet will not close at the end of the trading day, however rolls into the next trading day. The rolling bet will incur additional finance fees, so you should check with your broker for costs. The actual contract month bet is one that's opened and will close at the date specified and may be open as much as three months.
In conclusion, if you are new to financial spread trading you must ensure that you understand the many factors and terminology required. Make sure that you fully comprehend leverage, margin trading, stop loss orders, in addition to know the market you happen to be opening your positions in. Know when your position is actually expiring and watch for most recent announcements that could cause capital loss, and finally recognize the fees which you may incur.
by: Gene Currey
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