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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
If you were to spread bet on the movement of the collective value of a group of shares, which type of market would you be taking a position on?
Explanation
A stock index is a group of shares. When you spread bet on an index, you are therefore betting that the collective value of those shares will rise or fall.
Which of these factors can affect the size of a market's spread?
Explanation
In order to calculate the spread to offer on a market, providers will take into account a number of factors that may affect how easily it can be traded, including its volatility, its liquidity and its date of expiry.
Company XYZ, a stock listed on the Japanese Nikkei, initially has a price of ¥3715.00. An hour later, it is valued at ¥3720.00. How many points has Company XYZ risen by?
Explanation
For most companies, a 0.01 move in value represents a move of one point. But for those on Japanese exchanges, a move of one point is represented by a ¥1 change.
Which costs will you have to take into account when spread betting on shares?
Explanation
You'll never have to pay commission or capital gains tax when you spread bet*, whichever market you're betting on. You need to consider the cost of dealing - included in the spread - and the margin or deposit you're required to put down. There could also potentially be other costs, such as overnight funding charges, which we explain in the 'spread betting and CFDs' course. *Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
What do spread betting providers derive their buy and sell prices for an index from during normal trading hours?
Explanation
Unlike shares, forex or commodities, you can't buy and sell stock indices directly in an underlying market. However, they can be traded via derivative futures contracts, and spread betting providers use the prices of these contracts as the basis for their stock index markets.
When trading out of hours, what do spread betting providers use to calculate the price of an index?
Explanation
By applying a mathematical formula to related markets around the world, providers are able to create a buy and a sell price for an index even when the stock exchange and futures market are closed.
What usually happens to spreads on stock indices during out-of-hours dealing?
Explanation
When underlying stock and futures markets are closed, spread betting providers derive out-of-hours prices by applying a mathematical formula to related global markets. They also take into account dealing activity and any relevant news events. This means that out-of-hours prices can be quite different to the prices available when the underlying markets re-open. However, widening the spread gives providers a better chance of accurately reflecting underlying index levels.
The US dollar is currently valued against pound sterling at exactly $1.40032. How would this figure be presented in the spread betting platform?
Explanation
Providers scale their prices to make it clearer that a 1.0 movement represents one pip. In the case of GBP/USD, it is the movement of the fourth decimal place that is significant, so the decimal point moves along four places.
Your spread betting provider offers you a bid/offer price that it has sourced from a network of institutions. What are you spread betting on?
Explanation
Any assets traded on a centralised exchange, including stock index futures, have standard prices in the underlying market from which spread betting prices can be derived. However, over-the-counter (OTC) markets such as forex are traded via networks of banks or brokers who generally quote differing prices. A good spread betting provider will source prices from a number of different brokers to seek the best deal for its clients.
Each commodity is traded in a standard unit of measurement - gold in troy ounces, for example, or cocoa in tonnes - but they're all priced in dollars.
Explanation
Different commodities are traded in a variety of both standard units of measurement and currencies, although these are always constant for each particular commodity. However, with spread betting you don't have to bother much about the different units and currencies used for various commodities, since you simply stake an amount of money per point of movement. You just need to know what constitutes a point for the commodity you're betting on.
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