What is Financial Spread Betting?
Financial Spread Betting is unique in that it allows you to be very flexible with regards to the direction of your trades. Since you can go short as well as long, you can ask yourself the following before opening a position: "In which direction do I think my selected market is going to move?" As soon as you've decided on an answer, you can open a position by “buying” if you think the price will go up and “selling” if you think it will go down.
When you trade, you stake a certain amount, for example €10, for every point that the share price moves. If the share price moves in the direction that you predicted then you make a profit. If, on the other hand you are wrong about the price movement, you make a loss of €10 for every point it moves against you.
Take a look at the example below, which takes you through the potential results of two spread betting trades.
In both situations the price has to move by more than the spread before you start making a profit. In this case the spread is one point (the difference between 4920 and 4921) so as soon as the share price has moved more than one points you start making a profit. The spread on most of our equity contracts is between 0.15% and 0.3% of the price.(see all our spreads)
An Example of Spread Bet
Going Long and Short
With a financial spread bet, you have the advantage of being able to trade on whether a stock is going to rise or fall. If you believe that a stock is going to rise in value, you buy it – this is known as going long.
If on the other hand you believe that a stock is going to go down in value you sell it – this is known as going short. As in all financial markets there is a difference between the buying and selling prices.
Margin and Leverage
If you put just €10,000 into your Delta Index account you can make trades equivalent to approximately €50,000 to €100,000 of shares or €500,000 of currencies so you don't need to tie up resources to make big trades. Leverage magnifies losses as well as gains; please refer to the risk warning.
Charges
With the exception of overnight interest charges on rolling bets, normally, the only cost that you need to bear in mind is the spread, typically less than 1% of the share trading price. Compared to buying shares conventionally where the stamp duty on its own is 1% before you pay any dealing charges or commissions. To calculate the cost of your trade with us just multiply your stake by the spread (the difference between the buy and sell prices).
Occasionally, when you open and/or hold a short share position, you may incur a charge which is associated with third party borrowing costs. We will only ever pass on this charge to you where we incur the same from our counter-party, with whom we are hedging your short position.
Dividends
Prices for quarterly contracts already include the dividend. Thus on the day the share goes ex-dividend, the cash price of the underlying should fall by the amount of the dividend (all other things being equal). However, since the quarterly price has already been adjusted, it will not change. Thus, rather than receiving a cash payment into their account, long position holders are protected from the fall in the cash price, thereby receiving the benefit of the dividend (minus tax). Conversely, clients with short positions will not benefit from the same fall in the cash price, thus essentially paying the dividend.
For a rolling bet the dividend is applied as a cash transaction on clients account, applied on the day the stock goes ex-dividend. Clients with long positions will receive the dividend payment (account credit), clients with short positions will pay the dividend (account debit). All dividends are subject to withholding tax. This will vary depending on the jurisdiction of the underlying shares.
Tax
No Capital Gains Tax, No Stamp Duty:
When you make €10,000 in gains on your account it's all yours, you won't have set aside €2,000 for CGT: Your winnings stay yours. In other words, if you set a target gain on a trade, you can achieve this 20% earlier using financial spread trading.
People often wonder why Financial Spread Betting is tax-free. Unlike share ownership, you do not own an asset when you open a spread bet. Therefore when you make a gain, it's a betting gain rather than a capital gain. In Ireland betting gains are not taxable so you don't pay any Capital Gains Tax, Stamp Duty or Income Tax. On the other hand, losses cannot be offset for tax purposes. If you're not resident in the Republic of Ireland you'll have to check with your own financial advisor.
Risks
Financial Spread Betting involves high risk and is only suitable for those willing to accept that risk. Wins and losses on spread bets can be many times your original stake. Depending on the nature of your bet your losses may exceed your initial deposit. You should only bet if you are prepared to accept that degree of risk. You should always estimate the worst case scenario before you bet.
Spread betting or any investment in shares, currencies, commodities and similar and derivative products carry a high degree of risk and uncertainty and you are solely responsible and liable for decisions and transactions which you make arising therefrom. Past performance is not necessarily indicative of future results.
Please refer to Section 1 of the Delta Index Financial Spread Betting Terms and Conditions for full details of the Risk Warning Notice.
Disclaimer
Current US legislation prohibits Delta Index from entering into spread betting transactions with US residents. US clients include any natural person resident in the US (other than a short term basis) and any account held for the benefit of a US person.
We recommend you seek independent advice regarding your personal situation.
Trading different contracts
Delta Index offers a wide range of spread betting contracts for you to trade on.
In choosing which area to trade you should bear in mind more than your area of interest: commodity trading, currency trading etc. It is important to remember that different classes of contracts have varying levels of leverage. Remember, leverage multiplies both gains and losses. Leverage on shares is usually 5 to 10 times, on indices and commodities 20 to 30 times and on currencies 50 to 60 times.
Each market is open at different hours. To see the precise opening hours on any contract just click on the "i" button beside the contract on the client trading screen or call us on 1850 88 20 20.
New Orders, Stop Loss, & Limits
New Orders
A 'New' Order is an order that is not attached to any existing bet and is independent of any other instruction. A new order is used to open a bet at a level in the market which has not yet been reached. New orders may be placed above or below the current Delta Index quote within the minimum distance constraints. Any order activated by 'gapping' or fast market action will be filled at the first price at which Delta Index could reasonably be expected to attain (See Term 13 in our Terms and Conditions). No orders are guaranteed. A new order will not be canceled by any other actions on an account and will only expire when it is canceled, when the relevant market expires, or when it expires due to any Good For The Day (GFTD) instruction.
A 'New' order is different from a 'Limit' or 'Stop Loss' order because a limit or stop loss order is canceled when the relevant position to which it applies is closed, whereas a new order will remain open even if you intended to use it as a limit or stop order. For example, if you were long of €1 a point on the S&P 500 Dec at 10200 and you decided that you wanted to take your profit at 10600 should the market quote reach that level, if you entered this order as a new order to sell at 10600 instead of a limit order, this order would remain in place even if a stop loss on the trade was activated or the bet was closed (whereas with a limit order it would be canceled).
The new order functionality is useful for placing orders at critical market points; it will ensure that you do not miss an opportunity. When a new order is executed, it automatically creates a new stop loss order if you have automatic stop losses enabled. You may then add a limit order to the bet if you wish.
Stop Loss Orders
The stop loss order is used to limit clients risk on a trade is automatically generated when a new position is opened. The level is defaulted at 50% of the margin required for the position however we encourage all clients to adjust this as soon as the new position is opened. Stop loss orders will be triggered automatically when the target price is hit and the existing position will be closed. If the position is closed manually or by hitting another order, the associated stop loss order will be automatically canceled. Note that stop loss orders are not guaranteed and there is a risk that gapping may occur. In this event, orders will be filled on a best efforts basis.
Limit Orders
Limit orders may be added while a new position is been opening or at any time afterwards while the position remains open. A limit order is an order to ‘take profit’ if the position moves in your favour. Target levels may adjusted at any time. Note that if the position is closed manually or by an alternative order, the associated limit order will be automatically canceled.
Contingent Orders
Alternatively you may place a contingent stop loss or limit order on a new order, for example, if you place a new buy order, you can also stipulate the number of points you would like the stop loss and limit attached to the new order to be placed at. For example, you leave a new order to buy the Dow Jones at 13200 when it is currently trading at 13350. If this level is reached and your new order executed, you want to place your stop loss 50 points below the target price at 13150 and the limit distance 150 points above at 13350. These secondary orders are ‘contingent’ on whether the initial new order is executed.
Closing a Bet
Closing a bet can be done two ways:
- Go to the open positions tab, choose the trade that you wish to close and click on the close tab on the right hand side. This brings up a box with a live price and a sell button (or a buy button if your trade was a short). Click the button and your trade will be closed.
- Go to the markets tab, choose the instrument that you want to close and make an opposite bet to the one you are closing. For example, if you bought €10 on Eurodollar, just make a sell for €10 on the Eurodollar. This will net off one trade against the other and both bets will be closed.
Expiry of Trades and Rollovers
Typically there are three types of financial spread bets:
- Daily bets: expire at the end of the trading day
- Future bets: expire monthly or quarterly
- Rolling bets: Do not expire and carry a financing charge in the same way as a Contract for Difference (CFD)
Each financial spread bet has an expiry date, at which time the bet will be closed if the client has not already done so.
Rollovers
If your bet is nearing expiry, you can easily extend it for a further period of time. Within a month of expiry, Delta Index opens the new far contract; during the crossover period you can 'roll' your position on to the new contract by closing out of the existing position at the mid market price and opening the same position on the new contract . Any open profit or loss will be crystallised and show in the account summary, however the new open position will be priced at the current price level.
In the case of a rollover you are paying only half of the spread on the new contract rather than the full spread as you would have been charged had you opened a new contract in the conventional way. You can rollover as many times as you wish, each time paying only half of the regular spread.
To discuss rolling over your position, call us on 1850 88 20 20 or email us at client@deltaindex.com. Alternatively use the online ‘rollover’ facility in the open positions tab.