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Trading News Spread betting terms and understanding them
Trading News Spread betting terms and understanding them
Spread betting terms and understanding them |
| Written by Trader Hideout Editor | |||
| Sunday, 07 June 2009 09:50 | |||
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When you first start looking into financial spread betting, it can feel as though you have entered an entirely strange new world with a language all of its own. As many will tell you, it is however important to research and understand spread betting or spread trading before you start dabbling in it because although it is possible to make large profits using this method it is also possible to make large losses if you do not make sure you know what you are doing.Here we explain three of the more common terms you will hear when researching spread betting: • Margin: When you make a financial spread bet, there is no need to pay cash in advance to cover your whole exposure, or possible loss. Instead, spread betting companies will usually ask for an initial ‘margin’ of only 10 or 20 per cent of the value. • Stop-loss: This is an important one to learn, especially when first starting out. In order to prevent losses on a bet exceeding more than you want, spread traders can arrange a 'guaranteed stop' with the spread betting company. This will automatically stop the spread bet if the spread touches a certain level. Bear in mind though that if the stock comes back up, it is too late then, the spread bet or trade is now closed. • Close out: This is the ability to shut down or close a spread trade before its actual expiry date. For an ‘up-bet’ the closing level will be the bottom of the new spread and vice versa; for a ‘down-bet’ it will be the top of the new spread. If this all sounds confusing don’t worry too much as a good spread betting company will be happy to explain your options.
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