FTSE 100 Example

Here is an Example of trading the FTSE. I will first show you how to calculate the your bet size and bet risk. Then in the second part I will show you What to look out for and show you various strategies applied to the FTSE.

FTSE 100 Spread Betting Example

Here is a example of the FTSE 100. In this example lets assume you have already decided that you will spread bet the FTSE 100 up.

As you can see from the graph above the FTSE is currently trading at the spread price of 5468/70 with the mid price at 5469. In the Spread the price at which you buy is the offer price 5470 and the price at which you will sell is the bid, as you are selling to the buyers.
In this Example you believe that the FTSE will reach it’s previous high of 5540 but if it goes below 5440 you are happy to close your bet and cut your risk, take a loss.
Entry Long (current offer price) 5470
Profit Target (FTSE 100 previous high)- 5540
Stop Loss (FTSE 100 previous low) – 5440

-Limit price is 70 points above the current price and stop loss is risking 30 points.
-You decide you would like to Risk No more that 150 pounds, just to test your belief.
Stake (Pounds per point) = 150 GBP the amount you risking divided (by the points risking) 30 = 5GBP
-Your stake is 5Pounds a point. What this means is that for every point that the FTSE moves up or down you will loose or make 5 Pounds

If instead it goes in your favour all the way to 5540 + 70 points * 5GBP = your profit will be 350 GBP.
Risk reward Ratio: Your risk reward ratio is a min of 1:2. You are risking 150 to gain 350.

What is good practice is also to know the full value of your bet, well the full risk. This is only if the FTSE shuts down overnight and your spread bet looses the full of the FTSE 100 value overnight:
The Nominal value of the trade is £5 * £5470 = £27 350

To further help you in your Spread betting example, you can read calculating your risk

or back to the spread betting example section.

Royal Bank of Scotland Spread betting example

After the recent news we have had in the banking sector, here is an example of spread betting RBS (Royal Bank of Scotland).

Three days ago the news came out JPMorgan Chase acknowledges $ 2 billion trading loss. You strongly feel that this is a big story that will affect the banks, as JPMorgan Chase is the largest bank in the United States, and this would be a big loss of its own money. The news came out on the 10th May after hours, you decide to take a short trade the following Morning.

The Night before RBS was trading at 23.20. You wait for the market to open the next morning. RBS opened at 22.90 and starts moving lower:

You decide you would like to risk 150 pounds and look to take profit of 300 pounds. You look at the charts and you want to place your stoploss above Thursday’s high of 23.30. And you would like to take 300 Pounds profit. You calculate that the distance from the current price of 22.80 to the stoploss level of 23.50 is 0.7. You divide 150 GBP by 0.7, and you get your stake of 215 Pounds a point. Then you are looking for a ration of 1:2, you would like a limit (Profit) of 300 GBP with a distance of 1.4 points. You place your limit at 21.40.

As you can see from the Spread betting examples of Royal Bank of Scotland the trade went in your favour, You took a profit of 300 Pounds. If Instead it had gone against you, you would had lost 300 GBP

If you want to read a bit more on risk, you can see the section on Money Management

Summary:

Other examples of trading the banking sector: Spread betting example of Barclays shares

Return to the Spread Betting Example section.

Spread Betting in Gold

Spread Betting Example in Gold

Well as you all have seen overnight gold has had a substantial move overnight. This has proven to show how spread betting in gold could be attractive, but at the same time dangerous. A small summary of what happened, on Wednesday gold was trading in the region of 1780 USD, after Fed chairman Bernanke failed to reassure the market of further quantitative easing there was a 5% sell off in Gold. Why was this? Briefly, Quantitative easing is printing money, which is inflationary. So many will turn to gold as safe have to protect the devaluation of their money.

Charts: Gold

Now let’s get back to our gold spread betting example. I Have split this post in two parts – First a simple spread betting example how to trade gold, Second – Going one step further calculating your risk.

A) Spread betting example – how to trade gold

When Spread betting a new product the first question to ask your self is:

1) What is a point value in Gold?

You are eager to trade Gold, and you ask yourself, what is the Pound per point value? Is it 1 GBP for every cent or for every dollar movement in gold? To find this out, I have a screen shot of an IG account. In the ticket below, you look for the decimals to understand the value of your trade. When spread betting you always trade the numbers to the left of the decimal place. Therefore, you are trading 1 Pound for every big number movement. Therefore if gold goes from 1712 USD to 1713 USD this is one point movement.

2) What is the minimum distance of my stoploss? as you can see from the ticket above the stoploss has to be at least 2 USD away from the current market price.

3) What is the deposit I need to put down? Lets bring the Info Box. As you can see below, the deposit factor is 14. This means you need to multiply your stake by 14. So let’s say we are doing 1 GBP a point, you will need to place a deposit of 14 GBP.

Now let’s go straight to the calculations. Let’s put this all into a very simple graph.

I have brought to you 4 different scenarios. I will explain one of these more in depth and leave the rest for you to read.

In the spread betting example above, You decide to go long Gold. You are currently at point A in time and Gold is trading at $1,710. You place £1 a point. You will immediately need to deposit £14 pounds, as the deposit factor is 14 * your stake. The value of your trade is £1 * 1710.
Now Gold moves up reaching 1750 and you decide to close your trade selling at 1750. Therefore you have made £1750 – £1710 = 40 points time £1 a point = £40 Profit.

The following example you also take out a long trade but the market moves against you, and instead you loose 40.

The next two examples. You decide to short the market, the first trade goes in your favour the second moves against you.

Short Selling – For those that are unsure what shorting is. The concept is easy but takes a bit of time to grasp. the question many people ask, how do I sell something that I dont own. Think of it this way, you start off by loaning the brokers gold assets. So you go into the market and you sell Gold (that is not yours). When you want to close your trade, you go back to the market and buy gold back and give it back to your broker that has leant you the asset. So I will guide you through the first example.

You decide to want to short Gold, (Hypothetically you borrow it the assets from IG) and you sell it in the market at 1750. Now you are currently at short Gold at point A at $1,750. You have deposited £14 pounds, in order to open the trade, as the deposit factor is 14 * your stake. The value of your trade is £1 * -1750.
Now Gold moves down reaching 1710 and you decide to buy it back and return it to IG. Therefore you close your trade buying it back at 1710. You have made -£1750 + £1710 = 40 points time £1 a point = £40 Profit.

As you can see above you can have 2 different outcomes in 4 different scenarios. Unless your stoploss is hit.

B) Spread Betting Example – calculating your risk.

Now let’s go one step further in trading this commodity product and apply this example to your style of trading or your spread betting strategy. My personal style of spread betting, is I risk just under 1/3 of a day’s movement and try capture about 2/3 to 1 full day’s movement.

Calculating your risk:

1) Know your risk: know how much money you want to risk in any given trade. This will determine the distance of your stop loss.

2) Know your reward: Know where you want to get out of the trade in Profit. This will be your profit taking area.

For this example, we have an account of 2000 GBP and we would like to risk a maximum of 3% and looking for a reward of 6-8%.

We will risk, 60 GBP and we are looking for a profit of 120 – 160 GBP

3) Calculate the average range in Gold.

Here I have attached the average 5 day range of the last two weeks:

As You can see from the average range 5 day range, gold would move on average about 20 USD from bottom to top in a day, before Wednesday. After Wednesday the average 5 day range increased to 37USD. This is because the range on the 29/03 was 105 USD movement in gold, and this has brought the average up. If, instead you look at the range on the 2/03, after the markets calmed down. You can see Gold returned to it’s average 20 USD range. Putting this into our Gold trading example. I would put a stoploss of maximum 6 USD, trying to capture at least 12 USD movement. In this case I am risking 60 GBP in a 6 USD movement, therefore my stake would be around 10 Pounds a point. Let’s look at this in Practical terms:

Practical Terms:

A simple strategy I use is a Price Action Spread betting strategy. I look for the recent peaks or troughs and trade in the direction of the trend with a stoploss respecting my Risk Ratio Reward of 1:2 or 1:3. Looking at the Gold commodity cart below, on the 1/03 Gold had reached a peak of 1724. This was the high of the previous day, and the trend had moved lower after Ben Bernanke’s speech. We now place an order to sell just below the recent high at 1724, with a stop loss at 1730 (6USD distance -respecting the 1/3 day’s movement, and to avoid false break outs of recent highs). Profit target would be recent supports of 1711 or 1706. These numbers fall perfectly within our risk calculations above.

Our stake is 10 GBP a point. This because as we stated earlier 60 GBP is the most we want to risk, our logical stoploss is 6 USD, therefore the stake would be 10 Pounds a point. 60 GBP / 6 points = 10 Pounds a point . If my logical stoploss tells me to place a wider stop, my stake would be smaller. In this Gold continued to trend lower and reached 1712 the target of 12 USD movement x 10 GBP a point = +120 GBP. If it had gone the other way it would have loss –60 GBP.

I hope this brief explanation has helped you understand how to spread bet gold, and applied practically.

For more spread betting strategies in Gold or spread betting example

Bond – German 10 year Bund

Spread Betting Example of the German Bond

You have got into trading, and and you have a good understanding of Indices and Shares. Forex is maybe too fast for you but you have now a curiosity of trading the Bond Market. A good place to start would be our local European 10 year German Bond. Here I will give you an example of how to trade the German Bund. Further on I will show you the various products you can trade in the bond market, I will also give you a brief explanation on why you would trade the individual products.

The first thing to take in consideration when you want to trade a new market, is know the Margin (deposit), the stake you would like to spread bet and your markets Typical movement.

1) The Initial Margin Required: to know the margin, Log into your account and look for the information sign.

As you can see from the screenshot of this IG account the deposit factor is 70 x your bet. There is a Minimum bet of 2 GBP a point therefore you need a minimum deposit of £140. If you place a stop loss the initial margin is reduced by the distance between your opening price and stoploss, let’s say 25 points, times your stake. If your bet is £2 you will need a minimum deposit of £50 in this case.

2) You Spread bet stake you would like to place: Let’s say you have a 5, 000 GBP account and you decide you would like to place a maximum 2 % at risk for this trade, that is £100 not more. We will use the example of the 10 year German bond below.

The German Bund is currently trading 13903/ 5. To sell it is the lower price, 13903 and to buy it is the higher price 13905. The difference between the buy and sell price is known as the spread. The spread is your cost of trading. Spread betting companies charge a little commission on top of the market spread. In this scenario the spread is 2 points, which is quiet cheap, given they allow your to leverage your money.

Trading Long Example: So you have a hunch prices have just bounced off a support level or a pivot point and that the German Bund should not trade below 13880. At this level is where you will decide to exit if prices fall below 13880. The German Bund is currently trading at 13905. You also believe it should move back up to 13980, where you are more than happy to take profit. You have decided not to risk more than 2% of your account(£100). Therefore you decide to buy at 13905 and place your stoploss at 13880. This is a distance of 25 points. Therefore £100 / 25 point stoploss = £4 point stake.

If the Bund Moves Up to 13980 you have made 75 points (13980 – 13905 = 75) * your £2 you have made £150. If instead the prices fall back below the 13880, you will get stopped out loosing £100 the amount you decided to risk in the first place.

Trading Short Example: Instead if on the other hand you thought this is a little bounce and price will not move higher that 13950 but you believe prices will move down to 13850. Let’s do our maths again. You have decided you only want to risk £100, and the current sell price is 13903, as you feel prices will drop therefore you want to go short. The distance from the opening price to the stoploss is 48 points, therefore £100 / 48 points = just over £2. For this example we will round off the stake to £2. If prices reach your stoploss you will lose £94, if instead prices reach your target of 13850 you will profit from (13903 – 13850 = ) 53* £2 = £106.

Now that you have had these examples, there is ne more thing to consider, How many points will the bund move today?

To answer this question I will calculate the average daily movement. I have taken the High – Low and have averaged it out over the last 5 days. loot at the last column. on the 2012-01-19 prices moved 90 points, instead on the other days it moved 60 points. As you can see the average is about 70 – 80 points. this calculation gives you an Idea of what to expect from the German bund market movement in one day.

I Hope this spread betting example of the German Bund has been useful. i will later explain what moves the Bond markets and how to trade them.

Back to the spread betting examples

Forex Spread Betting Example

Many have been reading about the Euro, and how, maybe, it might not exist anymore in 3 – 5 Years time. The Euro moved steadily from 2005 where it was trading at 1.1700 against the USD 1.600 just before the financial crisis. In little over three month the eurusd moved from 1.6000 to 1.2314. This is a 23% movement from the beginning of August 2008 to the end of October 2008. From 2008 until today, the Euro recovered faster than the USD as there was a general scare in the US debt, but then the debt fear spread into Europe, with Greece. The Euro in all this moved twice up and down between 1.500 and 1.2400.

Many Spreadbetters are taking advantage of these moves, so lets look at a Forex spread betting example to show you how to trade the EURUSD and what kind of risk there might be. Let’s start off by looking ate the quote. The EURUSD is quoted as 12706.1/12708.1.

The smallest unit we are trading or spread betting on, is the 06/08. For every point these move we are risking our stake. In other words if we placed £1 in the stake box as in the spread betting examples below, we are risking £1 per every point movement.

As you can see from the screen shot above of an IG Index platform, we will need a deposit of £65 to open this trade without a stoploss. If we place a stoploss, this margin requirement would decrease.

If Eurusd we decided to buy £2 a point at 12708.1 and the Eurusd moved to 12789/12791 we would have made 80.9 (12789 – 12708.1) points * £2, that is a profit of 161.81. If instead of moving higher the EURUSD moved lower we would have lost £2 a point for every point movement lower, until it reaches your stoploss. Remember to monitor your risk with Stoplosses.

The question is How do I know what stake I need to put for the EURUSD? You can do this by calculating the average range. If you do this you will see that the Eur moves on average 80 to 120 points in a day. That is nice movements for scalpers.

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SPREAD BETTING EXAMPLES – Barclays Shares

I have always been of the opinion that the best way to learn a concept is through examples, and here I present a spread betting example that applied to Barclays PLC that will help your learn how to Spread Bet. So let’s get started.

Let’s say that you believe that Barclays shares were undervalued and that the market has sold them more on a small scare than a real change in company fundamentals. Therefore they have a good chance of rising in the near future. One way of taking advantage of this oversold state, would be to invest money in Barclays and buy the actual company. If your analysis proved to be correct, and the share price did return to their correct value, you would sell your shares at a higher price, making a profit.

An alternative way of taking advantage of your opinion would be to make a spread bet, backing the price to move higher.

Most Spread betting companies have a two-way quote of prices, at which you can ‘buy’ (that is back the price to rise) or ‘sell’ (if you were expecting the price to fall). As it is a bet, all prices you do spread bet on will have an expiry. Normally the expiry co-insides with the expiry of the financial futures date. You cannot hold the spread bet forever, but you can close the bet any time you wish before the expiry date. Similar to conventional trading, you can close your trade at anytime. Later I will expand on the expiry dates, but let’s keep it simple for now. Let’s say that you only want to take a short term bet on Barc.l

(Below Spread Betting Example of Spread Betting on Barclays Shares)

On our Hourly Chart you see Barclays forming a support area at 170 and you decide to make an up-bet by buying waiting for it to reach 169-170 again and buying higher end of the quote (the difference between the sell and buy price is known as the ‘spread’, by the way, and is where spread betting obtains its name from).

Similar to Share Dealing, the bigger the deal size the more you risk or stand to make or lose money for a given movement in the price. In spread betting you don’t deal in numbers of shares or contracts, spread bets are denominated in a set Pound per Point movement. Let’s say you decide to buy £10 per point. This means that you will make or lose £10 for every point movement the share rises or falls . 184 is equivalent to £1.84 GBP the price of Barclays shares. Therefore one point movement is equivalent to one point movement. Therefore for every penny Barclays moves you will make or lose £10.

Over the next few hours the Barclays share price moves higher reaching 183-184 as you can see the picture in Barclays spread betting example.

You decide to sell your spread bet and take profit. You close your spread bet by ‘selling’ £10 per point at 183 (the lower end of the quote).

Your profit and Loss is calculated by subtracting the price you bought your Barclays share 170 from the price you sold your Barclays share at (183). You closed your bet 13 points higher making a profit of £130 profit.

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