Financial Spread Trading

Financial Spread Trading (also known as spread betting) is a simple cost-effective and tax efficient way to trade global financial markets. Financial Spread Trading offers high-risk/high-reward activity that gives exposure to a wide range of investments across global financial markets including equities, currencies, indices and commodities.

Financial Spread Trading offers a flexible alternative to traditional trading by allowing you to profit (if you speculate the price movement in the right direction) from both rising and falling markets.

What is Financial Spread Trading?

The concept is straightforward – you are able to speculate on the future direction of price movements in an underlying instrument.

• If you think that a market or asset price is set to rise, you place a ‘buy’ trade, i.e. go long
• If you think that a market or asset price is set to fall, you place a ‘sell’ trade, i.e. go short
• Your profit or loss is simply the difference between the opening price and closing price of your trade, multiplied by your stake

For example, you might think that ABC Co.’s upcoming full-year results will be weak and the share price is set to fall from its current value of 100c. You could place a sell trade on ABC Co. for a stake of $5/point.

At the expiry date, if the company results are indeed weak, and the share price falls to 90c, you would have a profit of $5 x 10 points = $50.

But if the results are good and the share prices rises to 110c, you would lose $5 x 10 points = $50. This shows the high-risk nature of spread trading – you can make a gain or a loss that is much larger than your initial deposit.

Disadvantages of Financial Spread Trading

Although they present an opportunity to make significant profits, the geared nature of spread bets means that a relatively small movement in price of the underlying security will result in a much larger movement in the value in the spread bet. It is therefore possible to lose more than your initial deposit. Your relationship manager will help explain to you the advantages of this ever growing investment sector.