Spread Bet Markets: Shares/Equities – Rolling Contracts
Shares represent the value of a quoted company at that precise moment in time. So if a company has issued 10,000,000 shares and these are trading at £10, the value of the company is said to be £100m. As the declared past performance or future expectation of that company alter, so will the price of the shares.
There are many benefits to using financial spread betting for trading shares, in particular the fact that there is no stamp duty imposed on the spread bets (under current UK tax law) and the fact that you can trade on margin which allows you more flexibility over your portfolio.
Now imagine this situation. You know Dominos Pizza is reporting its profits today, you know the cost of retail rent, wheat and other items have gone down in the last few months. You know the economy is climbing and people can spend more on luxury goods such as fast-food. A spread betting firm may offer a daily rolling price on Dominos Pizza at 474 – 477. This means you can sell at 474 if you think the price will go down or buy at 477 if you think it will go up. If you bought the share at 477 with a stake of £10 and at the close of trading it ends at 500, you have made £230 profit!
Remember that financial spread betting is a derivative of an underlying market. This means that if you open a buy trade on a share with a spread betting company you have no rights over the shares themselves. As you do not own the shares, you have no voting rights and won’t be able to attend the Annual General Meeting.
Example of a Share Spread Trade. You can trade shares at Ayondo
Your automatic stop loss would be placed at 80% of the margin requirement. With a £10 trade, this would be the equivalent of £150 x 80%=£120, which at £10 per point puts it 12 points away from the opening price, i.e. at 138.0p.
You could move this stop loss closer to the opening price which would free up additional funds for trading or as you still have £100 of Trading Resources, you could move the stop loss further away. In this case, the furthest you could move it would be £100 x 80%=£80, which at £10 per point puts it another 8p away, i.e. down to 130.0p.
The next few weeks sees market sentiment improve for telecoms and Vodafone also releases some good news. The price rises and you decide that you want to close your trade and take your profit:
The below example is using a rolling contract, so the profit stated has not taken into account any overnight financing.
When trading Rolling Daily shares, you also need to be aware of:
Dividends
On Rolling Daily contracts, dividend adjustments are made to your account if you hold a position in a share (and sometimes indices) that goes ex-dividend. If you have a ‘buy’ trade on a share when it goes ex-dividend you will receive a credit to your account. If you have a ‘sell’ trade on a share when it goes ex-dividend a debit will be made to your account. Any credits for long positions are 80% to 90% (depending on the spread betting company’s policy) of the total dividend and any debits for short positions are 100% of the total dividend.
Exposure
Knowing your overall notional exposure for a trade is useful when considering how much absolute risk you are taking. This is calculated simply by taking the price as you see it on the screen, dividing it by the tick size or trade unit risk and then multiplying this by the stake. The table below illustrates notional exposure of a few share trades:
As you can see, a £1 stake in Google actually meant that you had a position equivalent to the purchase of £35,509 of stock!
DON’T MAKE THE MISTAKE OF MOST!
The next few pages I will be pointing out the other products that you can trade in. However, it’s not important that you do trade in these products, as ever it is your choice.
My aim over the next few pages is to give you some good knowledge on these so when the time comes you understand how they work and what profits you can expect to see from trading them.
Please be aware that within this course I tend to concentrate on individual share trades when I analyse the charts and show the videos. I will from time to time point out good opening trades within that of the Indices or commodities. For the most part though I will be supplying you with information that will allow you to successfully trade in share financial spread betting and become a great learning tool.
From there I will begin to talk about the actual strategy for trading. What tools I use and most of all why I am using that particular tool or technique.
My ideal belief is that you will know exactly what to do after you have spent some time reading through the course ware. Maybe even having made a few so called ‘Paper Trades’ or indeed having properly traded using our guide to analysing charts.
Paper Trading:
There are now many brokers that will allow you to open a ‘virtual’ account. These accounts are a great learning tool. As you will be using the same tools, the same trades, the exact same information that you use when you begin trading real money. However, with ‘virtual’ money it’s easy. We know that it is make believe. Believe me, to make the same trade using your own hard earned money is very different indeed.
So don’t forget! The next few pages are just an outline of what products you as a trader can trade. They vary from one spread betting company to another. Some have better spreads on trades than others, some companies will not deal with some of the products I am mentioning. I do believe though that knowledge is power and you can then benefit from this knowledge.
Let’s get going.
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