Now that you know the basic principles of spread betting on the financial markets, how you calculate your profit or loss, and how the spread affects your profits, it is time to look in more depth at how you can place the bets. In this respect, spread betting is very similar to financial trading, giving you a range of orders with which you can control your entry to and exit from the market.
This guide can help you learn:
- What spread betting is and how it works
- How to place a spread bet trade in a variety of markets
- How to manage risk and analyse the market
Learn Spread Betting
First some jargon, a buy order is when you think the price is going to increase and is placed at the high number quoted, and a sell order is when you want to profit from the price going down, and that is placed at the lower quoted number. The sell order is the equivalent of going “short” in trading. When the order has been placed and accepted by the broker it is called “filled”, and when you close your position, getting out of the trade, you will buy or sell “to cover”.
The most common type of order that you will use is called a market order, and the transaction simply takes place at the price at the moment you placed the order. Note that this might vary from what you thought you were doing, as the pricing varies all the time, but it should be very close to the last number you were given or saw on your screen. Sometimes this will work in your favour, and sometimes not.
If you’re concerned to place your spread bet at a certain price, you can use a limit order, which sets the limits that you want to bet at. Usually the limit price, whether buying or selling, is better than the current market price. For instance, you may place a limit buy order just below the current quote. This order will not be filled until the price drops to the limit level, so it ensures that you get into the market where you want to or better. Of course, if the price never drops to your limit level, then your bet never gets placed and you may miss out entirely on what could have been a profitable spread bet. This is the price you pay for knowing that you are not placing the bet at a higher level than you want to.
Another very common type of order is the stop order, frequently seen in the form of a stop loss order which prevents you losing too much money if the trade goes against you. The stop order is usually placed at a price which is worse than the current market price. In the typical form, if you had taken a long position in a financial security you would enter a stop loss order at a lower value. If the trade went against you and the price dropped to the level of the stop loss order, then the stop loss order would be triggered and become a market order to sell. This would take you out of a losing position and minimize your losses.
An important point is that a stop loss order, when triggered, only becomes a market order, so there’s no guarantee of the price at which the trade happens. Whatever you do make sure that you understand how spread betting works and the associated risks before trading with real money. Most providers nowadays offer seminars and live e-trading events for beginners, intermediates and even experienced traders and you would do well to take advantage of these courses.
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