Glossary Of Financial Spread Betting Terms

Financial spread betting may seem complicated at first, mainly because of the jargon. But it’s actually quite easy to understand. Here we explain what the most commonly used phrases mean.

Ask Price

Sometimes called “buy price” this refers to the price which the buyer pays for their security. It is quoted within a bid/ask quote.

Bear

The term “bear market” means one which is seeing a fall in its value. Traders who think that the price of stock is about to decline can be described with the term “bear” or is described as having a “bearish outlook”. The term “bull market” is the opposite of this.

Bid Price

This refers to the price that the traders is able to sell the security it. Sometimes called a “sell price”.

Bid-Ask Spread

Difference between bid and ask prices.

Bond

Apart from taxation, world governments also borrow money in an international credit market by issuing bonds which are debt-bearing instruments which are able to be traded.

Bull

This term described a rising market which is characterized by increases in share prices by more than 20%. Bulls are also traders who think stock market prices are rises. The opposite of “bear.”

Capital Gains Tax

This is a 28% or 18% tax which depends on whether the trader pays income tax at the higher or basic rate. It is paid on any profits on selling shares (which are not in a PEP, ISA or NISA). When spread betting, it’s possible to earn an extra 28% or 18% return on trading profits.

Commodity

A commodity is a tradable raw material or primary agricultural product. Some of the most popular commodities for trading including precious metals, sugar, coffee, agricultural products like beef, oil and gas.

Daily Rolling Rate

This charge is applied for every day that a trade remains open. This fee generally includes the provider’s standard rate as well as a 1-month Interbank funding rate (such as LIBOR).

Exotic Currency Pairs

An exotic currency pair is made up of a major currency which is paired with another currency from a smaller or emerging economy. Since exotic currencies are sold and purchased in large volumes, the spreads are generally very narrow. Since these emerging and smaller economies have a financial, economic and political environment which changes rapidly, their currencies often make larger and speedier moves allowing the potential for greater profits.

Going Long

Going Long refers to placing a “buy” bet which you would do if you think the market will rise.

Going Short

Going Short refers to the occasions when a trader places a “sell” bet as they think the market is going to fall.

Hedge

Companies and investors use hedging as a way of protecting themselves while reducing their exposure to risks.

Index

When people use the term “markets”, usually they are talking about indices. An index measures the change in several stocks which represent a specific market (or part of one).

Leverage

During spread betting, traders benefit from using leverage which allows only a small amount of money to be put down as a deposit on the security’s price in order to open trades. This means profits may be hugely amplified.

Liquid

Liquid markets are when there is a lot of demand from sellers and buyers, resulting in low volatility and narrow spreads. Trades in liquid markets take place easily and quickly and at low cost due to the large amount of ask and bid offers. Low volatility also means changes in supply & demand will have only a minor impact on the prices.

Margin

A margin refers to the amount of money required to open positions, defined by a margin rate. This different depending on the security chosen for spread betting. Margin trading enables investors to speculate with just a tiny amount of the amount of money which would normally be required.

Point

This describes a price change in a security. It is the smallest price change possible in the security that is being speculated. E.g. should the FTSE market experience price movements from 6331.95 up to 6331.97, the price change is 2 points.

Pip

Usually all major currency pairings are quoted to 4 decimal places, with the final digit being named a pip or point. E.g. if the EUR/USD pair had a quote of 1.0661 as its bid price and 1.0664 as its ask price, the spread is 3 pips.

Rollover

When the bet approaches expiry, it will be closed then another bet in the same direction and size will be opened to cover the following period to prolong the exposure of the bettor to that security.

Security

Securities are assets which are tradable on the markets. Commonly, the term means any kind of financial trading instrument.

Sell

A trader can short or “sell” a market when they think it is going to fall. It is also possible to “sell” if you wish to close out on a pre-existing “buy” bet.

Share

A share is a fraction of the value of a company which is owned by an individual. Shares are traded via stock markets like the New York or London stock exchanges.

Spread

The spread is the amount of difference between the sell and buy price of any security. Sometimes called the bid/ask spread, it can be influenced by a number of elements like supply & demand, or the total trading activity or liquidity of that security.

Stock Exchange

The term “stock exchange” is used to refer to an exchange or market where securities like bonds and shares can be purchased and sold. Prices in the stock market are dependent on supply & demand.

Stop Loss

A stop loss orders a security to be sold at a specified price to limit any loss.

Stamp Duty

This tax (currently standing at 0.5% in the UK) is applied to all share purchases in the UK. Spread betting is exempt from stamp duty, therefore a short or medium term spread bet could well be more affordable than purchasing the securities themselves.

Volatility

Volatility refers to how much variation there is in a trading price in the market over time.