If you want to spreadbet on the USA markets, then you have a choice of indices. The SPX 500, or S&P 500, is based on the share prices of 500 of the largest companies in America, and so is a good barometer of the American economy.
You will find competitive spreads on the SPX 500, perhaps as little as one point or less. If you believe the S&P 500 Index is in for a rough patch after the USA reported poor monthly payroll figures, you could go short or sell the US stock index at say, £6 a point. In this instance you would profit £6 for every point the index falls below your entry price. However, if prices rise, you would stand to lose £6 for each point the S&P 500 Index rises overy your entry level.
Say that your spread betting provider is quoting you 1224.36 – 1225.36 for a rolling daily bet, and you decide that the US market is going to tank (again). You place a bet of £6 per point for the index to go down, which is called a short or sell bet, and your starting level is 1224.36.
The index falls more than 30 points in the day, to a level of 1191.67 – 1192.67, and you decide to close your bet for a profit. Because you effectively “buy” to close a short bet, you close at 1192.67.
To work out your profit, first you have to calculate how many points you gained. You started at 1224.36, and you close at 1192.67. Therefore you gained 1224.36-1192.67, equals 31.69 points. You bet at a level of £6 per point, and therefore your total winnings are 31.69 times £6, which is £190.14.
If you had been unlucky, and the index had gone up, against your bet, you would reach a point where you needed to close your bet and cut your losses. You should know this point from your trading plan – say it was when the index went up to 1235. So you close your bet when your spread betting provider quotes 1234.10 – 1235.10, and the closing price is 1235.10.
Just as before, you can work out the financial consequences by first figuring out the point difference. 1235.10-1224.36 equals 10.74 points. Your bet was £6 per point, so multiplying that out means you lost £64.44.
Say now that you want to take out a US SPX 500 bet for a future date. The current quote for six months away is 1208.88 – 1209.88. This is still a tight spread, because of the popularity of this index. You can see by comparing this to the rolling daily value that the market as a whole believes the index is going down.
You too think that the index is going down, and you think it will go lower than 1208.88. Therefore you place another sell bet at that level for £15 per point.
After three months your spread betting company is quoting 1188.66 – 1189.66, and as you believe another round of stimulus may be announced soon you decide to close your bet early and take your profit. You close at 1189.66.
The number of points that the index went down is 1208.88-1189.66, which is 19.22 points. Multiplying that by your stake, you find that you have won £288.30.
Once again, if your bet had run the wrong way you could decide to close it and cut your losses. Say you did that when the quote was 1217.53 – 1218.53. You close your bet at 1218.53, and taking off the original value of 1208.88 you lost 9.65 points. For the stake of £15 per point that you wagered, you find you have lost £144.75.
How to Spread Bet the S&P 500 (SPX 500)
If you want to spread bet on the American markets, you might consider betting on the US SPX 500. This is based on the S&P 500 index, which is owned and maintained by Standard & Poor’s. You may remember Standard & Poor’s as the ratings agency that recently downgraded the US credit rating, but they do a lot more than just provide ratings.
The S&P 500 is based on the top 500 companies traded on either the New York Stock Exchange or the NASDAQ. It includes all the major US companies, and thus it gives a good guide to the state of the US economy. It has reasonable volatility, particularly recently, making it a good choice for betting on, and because of its popularity you will find a variety of products offered by the spread betting companies, including a daily rolling bets and futures based bets.
The companies in the index are selected by a special committee, and are chosen for market sector, market size, and availability of shares to the public. They are all large cap companies, and the index is weighted according to the market value of each company, so larger companies have a bigger influence on the index. It is likely that you’re familiar with many of the companies represented.
Another advantage of using an index that is popular and heavily traded is that the spreads tend to be low. The spread can eat into your profit, particularly if you do a lot of short-term betting, and some spread betting providers have been seen to offer spreads of as little as 0.5 points on the SPX 500. If you do decide to bet on the SPX 500, you need to bear the time differences in mind as this can make a difference to how the prices react. If you bet during the opening or sometimes closing session of the American markets, you may find that there is a lot of movement that is not always rational. The markets can also be quiet around lunchtime, corresponding to the early evening in the UK.
If you want to bet on the S&P 500, you should first do some homework on the US economy to see what the overall trends in the financial markets may be. When trading, it is always good if you can align your bets with the prevailing trend as this provides best chance of success. However, as you may see differing trends depending what time scale of chart you’re looking at, and what you are betting on, this is not a hard and fast rule.
The other thing to watch out for with any sort of financial trading, particularly ones such as spread betting where you are leveraging your money, is that you need to minimize your losses as a priority, and allow your profits to happen. Indices can fluctuate fairly rapidly, so you need to strictly enforce any stop loss level that you have, either by placing a stop loss order or by keeping a watchful eye on the prices and closing your bet before they run away from you.