Spread betting basics and placing your first trade

Transcription

1 SPREAD BETTING basics and placing your first trade 1 MODULE Spread betting 1 Spread betting basics and placing your first trade

2 SPREAD BETTING basics and placing your first trade 2 How to use this module Navigation There are two navigation systems in this PDF. You can move forwards and backwards using the arrows at the top of the page. You can also navigate back to the contents page using the button in the header. Printing To print this document you ll need to exit the full screen mode by pressing Esc on your keyboard. This will then give you the menu bars at the top of the screen. Then proceed to print as you normally would. To return to the full interactive screen PDF, press Ctrl L on your keyboard.

3 SPREAD BETTING basics and placing your first trade 3 Contents Spread betting overview The benefits In practice Taking the first step Spread betting with CMC Markets The history of spread betting and why it s become so popular Benefits of spread betting over traditional share trading Why spread bet? How spread betting works the sell/buy concept The order ticket Let s take a look at some examples Trading a company Trading an international company A spread bet on an index The benefits of trading with CMC Markets 14 Software Placing a trade Review CMC Markets trading platforms Create your own dashboard Placing an order CMC Markets web platform: Icons A step-by-step guide to placing and managing spread bets 1. Using the Type filter 2. Using the intelligent search box Lets look at some examples Example 1: Spread betting on a UK company Summary Test your knowledge Glossary Example 2: Spread betting on an index 31 Spread betting is a leveraged product and carries a high level of risk to your capital as prices may move rapidly against you. It is possible to lose more than your initial investment and you may be required to make further payments. These products may not be suitable for all customers therefore ensure you understand the risks and seek independent advice.

4 SPREAD BETTING MODULE 1 4 SPREAD BETTING basics and placing your first trade Taking the first step You have just taken the first step towards understanding spread betting and taking control of your trading. CMC Markets has developed Trading IQ to help you learn about all aspects of spread betting. The CMC Markets Trading IQ modules will help you: > Learn the basics of spread betting > Place your first trade > Understand the terms finance, margin and exposure > Understand our different order types > Learn about the different financial markets you can spread bet on > Understand how to trade using fundamental analysis > Understand charting and some basic technical analysis > Use some of our most popular trading indicators > Benefit from tips from the CMC Markets trading floor TIQ TIP Throughout Trading IQ there will be hints and tips to help you with your trading. Remember our goal is to make you an educated trader.

5 SPREAD BETTING basics and placing your first trade 5 Spread betting with CMC Markets Spread betting is a way of trading on the price movement of a financial market or instrument (whether it will go up or down in value) without the hassles, costs and limitations associated with physical ownership. Spread betting allows you to take a position on whether the price quoted for a given financial product is likely to go up in value (buy) or go down in value (sell). The price quoted when you spread bet is CMC Markets price and is derived from an underlying asset (derivative product), which could be a currency, a commodity, an index or a company. You then bet an amount (in pounds per point) that the price will go either up or down.the spread bet will track the price movement of your chosen product, including interest and dividend payments. For every point a product moves in your favour, you gain multiples of your stake. For every point it moves against you, you lose multiples of your stake. Unlike with traditional share dealing, with spread betting you don t actually own the physical share. This gives you the opportunity to profit when the markets are rising or falling. Remember that prices can move against you and you could make a loss. 1MODULE Spread betting basics and placing your first trade description here This first module covers the background, history and benefits of spread betting. It also provides you with a basic guide to navigating around our spread bet platform with step-by-step instructions on how to place your first market order.

6 SPREAD BETTING basics and placing your first trade 6 The history of spread betting and why it s become so popular Modern-day spread betting became more prevalent in the 1990s to allow hedge funds to trade products in a cost-effective way, on margin, and without having to pay stamp duty. During the IT boom of the late 1990s, companies at the forefront of technology (such as CMC Markets) developed trading platforms to allow private investors to take advantage of new institutional-style online trading themselves, without having to rely on a telephone broker. Spread betting has continued to grow in popularity as private investors become more knowledgeable and sophisticated with regards to the financial markets. Reasons to spread bet include: > You can use less capital to trade larger positions (using margin)* > It is possible to make money from falling markets as well as rising markets > Profits are free from Capital Gains Tax and there is no stamp duty to pay** People are also realising that spread betting opens up a whole new world of investment opportunities besides physical shares, property and unit trusts. There are literally thousands of different products you can trade through a spread betting account. These products fall under the following categories: > Shares > Indices > Foreign Exchange > Commodities > Treasuries TIQ TIP Our customers spread bet because they have easy access to online trading tools and can take advantage of tight spreads. Certain products, like foreign exchange and some indices and commodities, are traded 24 hours a day. > There is no currency risk, all profits are in pounds per point *The risks associated with using margin are covered later in this module. **Tax treatment depends on the individual circumstances of each customer. Tax law can change or may differ in a jurisdiction other than the UK.

7 SPREAD BETTING basics and placing your first trade 7 Benefits of spread betting over traditional share trading 1 Built in commissions and no stamp duty There are no distinct commissions or transaction fees associated with spread betting. These individual charges have been built into our price quotes, providing greater transparency so you always know what you re paying for. And remember, as you are not buying the underlying product, stamp duty does not apply*. 2 Access to margin Spread betting offers access to margin, which allows you to invest in financial products without having to deposit a large amount of your own funds. CMC Markets offers highly competitive margin rates on all our products, starting from as little as 0.25% on indices and currencies. Trading on margin can help you to more effectively allocate your funds. Please remember that losses can exceed your initial deposit when you trade on margin. 3 Profit from rising and falling markets With spread betting, you can make money from falling markets as well as rising markets. If you go long you are hoping to profit from a rising market by buying low and selling high. If you want to profit from a falling market you can go short by selling first, while the price is high, then buying when the price has dropped. Remember it is possible to make losses if the markets move against you. 4 Cross market opportunities There are literally thousands of different products to spread bet on across all the major shares and indices in the US, UK, Europe and Asia. All the main commodities, currency pairs and treasuries are also available to trade on. *Tax treatment depends on the individual circumstances of each customer. Tax law can change or may differ in a jurisdiction other than the UK.

8 SPREAD BETTING basics and placing your first trade 8 Benefits of spread betting over traditional share trading 5 Speed of execution A trade can be carried out quicker than the services typically offered through a traditional stockbroker. Most spread bets are executed within milliseconds. 6 No currency risk Even when trading products from different countries, your profit or loss will always be in pounds. 7 No capital gains tax All profits made from spread betting are not subject to capital gains tax. Traditionally CFDs were primarily used for short or medium-term trading. However, when you trade CFDs with CMC Markets, you can reduce the costs of longer term trading by making use of our customisable margin feature and investing more margin, therefore reducing your overnight financing costs.

9 SPREAD BETTING basics and placing your first trade 9 How spread betting works the sell/buy concept Spread betting involves trading on the price movements of a particular share, index, currency or commodity. You can trade on the price moving up or down. We quote you prices at which you can buy (if you think the market will rise) or sell (if you think the market will fall).these prices are CMC Markets prices and generally follow the underlying market price. The prices you trade are called the SELL and BUY prices. In effect, it is just like buying and selling shares, you sell at the SELL price or you buy at the BUY price. The difference between the two is called the spread. So, if the sell price is 1, and the Buy price is , the spread is 0.3 points. BUY (1,808.30) You buy if you expect the price to rise. When you buy you pay the BUY price, which will be the higher price on the screen. SELL (1,808.00) TIQ TIP The difference between the Buy and Sell figures is called the spread. You sell if you expect the price to drop. When you sell you pay the SELL price, which will be the lower price on the screen.

10 SPREAD BETTING basics and placing your first trade 10 The order ticket Let s take a look at the prices within an order ticket and at how spread betting works in further detail. When you decide to place a trade you need to consider what stake size you want to bet on the price going up or down. So, every time the price of that product moves up or down you will make a profit or a loss. This amount will be the size of the stake multiplied by the number of points the price has moved. For example if you buy 200 per point of Vodafone and the price appreciates by 10 pence, your gain is 2,000 ( 200 x 10 points) (see below). As you are spread betting in pounds per point, there is no currency risk. Your profit or loss will always be in pounds, whether you re trading a product from America, Europe or Asia. For example, if you bought Google (which is listed in America) at 2 per point and the share price rose by $1.00 (or 100 points) then your profit would be 2 x 100 = 200. TIQ TIP UK company prices are quoted in pence. A full point movement is indicated by a change in the last big figure in the price quoted. If you buy 200 per point of Vodafone at this price......and sell them for this price... TIQ TIP Just like in the underlying market, the spread in a company s price quote can change to reflect liquidity....then the price has appreciated by 10 pence......and your gain is 2,000 ( 200 x 10 points)

11 SPREAD BETTING basics and placing your first trade 11 Let s take a look at some examples Trading a company You expect Vodafone profits to beat expectations as the outlook for economic growth and mobile phone demand improves. You decide to buy 10 per point at This gives us an exposure of 1,600 (160p x 10). For every penny movement in the price you stand to make or lose 10 There are two possible outcomes Profit Your forecast is correct and Vodafone s price rises to p. The spread bet tracks the underlying share price increase and you have placed a take profit order to close the position by selling the 10 per point at p. Your profit is 40 x 10 per point, or 400. (Note that we haven t included margin in this example. This is covered in Module 2.) Loss The price could just as easily have gone down from p to p. Had you sold at p to close the position, you would have made a loss of 400. Your loss is 40 points (160.00p p) x 10 per point = 400.

12 SPREAD BETTING basics and placing your first trade 12 Let s take a look at some examples Trading an international company You expect Exxon Mobil s, profits to beat expectations as the outlook for economic growth and world energy demand improves. You decide to buy 2 per point at $ Buying 2 per point is the equivalent of buying 200 shares of Exxon Mobil, so your exposure is 16,316. For every cent movement (Exxon Mobil s price is quoted in US$), you could make or lose 2. There are two possible outcomes Profit Your forecast is correct and Exxon s price rises to $ The price has risen by US$2 or 200 cents, which is 200 points. The spread bet tracks the underlying share price increase and you have placed a take profit order to close the position by selling 2 per point at $ Your profit is 200 points x 2, or 400. (Note that we haven t included margin in this example. This is covered in Module 2.) Loss The price could just as easily have gone down from $ to $ Had you sold at $ to close the position, you would have made a loss of 400. Your loss is 200 points ($ ) x 2 per point = 400.

13 SPREAD BETTING basics and placing your first trade 13 Let s take a look at some examples A spread bet on an index Scenario: You are a UK customer who thinks the Germany 30 index will increase in value as consumer confidence is improving and industrial exports are likely to strengthen following recent currency weakness. Buying the Germany 30 index will allow you to profit if the rise occurs. So you decide to go online and check what price is available. You first need to find the live price for the Germany 30 index in the product library using the filter or the search function. For this example, we will use the search function, which is the easiest and fastest way. Using the search function is simple, just type in all or part of the product s name. Step 1 Search for the Germany 30 index using the search function in the product library. 1. Type Germany 30 into the search box. 3. Click the buy price to open the order ticket. 2. Result for the Germany 30 index shown.

14 SPREAD BETTING basics and placing your first trade 14 Let s take a look at some examples Step 2 Step 3 You decide to buy 5 per point worth of the Germany 30 index. On the order ticket, enter 5 under /pt. Enter your stop loss and take profit levels then click Confirm to place the trade. Enter 5 here. Choose a take profit level, by price or amount.* Enter a stop loss level, by price, amount or distance in points. * TIQ TIP The stop loss and take profit levels can easily be edited after you have placed the order. *Risk management orders will be discussed in more detail in module 3.

15 SPREAD BETTING basics and placing your first trade 15 Let s take a look at some examples Step 4 Click Confirm to place the trade. A confirmation screen will verify the trade was placed successfully. TIQ TIP Remember that you can buy (go long) if you expect prices to rise, or sell (go short) if you think prices will go down. This is just one of the benefits that make spread betting so attractive to our customers. The confirmation screen displays your stake, the product s price, the type of order you have placed, and your stop loss and take profit levels. That s how easy it is to spread bet on an index using our platform.

16 SPREAD BETTING basics and placing your first trade 16 The benefits of trading with CMC Markets Automated trading Technology is vital to our business, so we invest heavily in this area to provide a solid foundation for the services we offer. Our backend systems can handle over one million prices per second, so our customers can be confident that, even during the most turbulent market sessions, our platforms will continue to deliver the service they expect. We deal in highly liquid products that are connected to all the major exchanges electronically, offering our customers no dealer intervention, just 100% automation. 24-hour trading You can trade at almost any time of day, from when the markets in New Zealand and the Far East start trading (Sunday 9pm, London time) to when the New York Stock Exchange closes on Friday at 9pm, London time. You can trade on a wide range of markets, including those in the UK, USA, Europe and Asia. Some products, including all currency pairs, gold and silver, trade 24 hours a day when the markets are open. Built-in risk management Built-in transaction based stop losses automatically suggest a stop loss for you (unless you have turned this off in preferences). This feature helps to limit potential losses if the markets move against your position. This stop loss is set at a suggested level and can be altered at any time while the position is open. If you are using transaction based stop losses you are unable to delete the stop loss completely once placed, you can only edit the level. Trading from charts Our charting has been developed in-house and it gives our customers access to a full suite of technical analysis tools, whilst offering a user interface that is accessible for investors of all experience levels. You can trade directly through our charts, as well as amend risk management orders, such as stops, trailing stops and take profit orders. Trading on our platform is more straightforward and userfriendly than ever before. Competitive pricing and spreads Our precision pricing engine allows us to provide exceptionally (and market-leading) tight spreads, even during volatile market conditions. Most of our products have additional decimal places for more exact pricing. We call this precision pricing.

17 SPREAD BETTING MODULE 1 17 SPREAD BETTING basics and placing your first trade CMC Markets trading platforms CMC Markets spread betting accounts come with a full suite of new trading platforms that give customers access to the financial markets from anywhere in the world - internet access is all you need. Our platforms are free, interactive and they put you in control wherever you are. ipad Experience a spread betting app that fully utilises the large, highresolution touch screen of the ipad. Spread betting has never been so hands-on, simply touch, tap and trade. Gain access to realtime pricing, multi-touch charting with technical indicators, and live news for thousands of global products. iphone Spread bet on the move with our fully functional iphone platform. Access real-time pricing, live streaming charts and news for thousands of global products, on your iphone. You can even customise your order tickets with pre-set stop loss and take profit orders to manage your risk, wherever you are. Desktop You can get access to real-time pricing, next generation charting and live news for thousands of global products via your web browser. Our web platform puts you in control, allowing you to customise your layouts and personalise watchlists. AndroidTM You can now spread bet from Android mobile phones too. Our new Android spread betting app gives you instant access to world markets from any mobile phone running an Android operating system. Apple, the Apple logo, and ipad are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

18 SPREAD BETTING basics and placing your first trade 18 Create your own dashboard Customise the platform to suit you, using simple drag and drop functionality. Web platform features Factsheet View all product information in one location, including margin levels, spreads, trading hours, Dow Jones news and live charting. Order ticket When you select a product to trade, the order ticket is populated with the current price we offer. This is also used to set up limit orders to enter the market. You can access risk management tools such as trailing stop losses too. Watchlist Create favourites in your watchlists by dragging and dropping products from the product library. Navigation dock Access the product library, watchlists, alerts, the economic calendar, the live Dow Jones news feed, insights, economic calendar, price alerts, education zone, pattern recognition scanner, your account and add funds. Product library Use the intelligent search tool to find a product by name, type, region, country, volatility and performance. Quote panel See the live buy and sell prices of a selected product. Account Check open positions, pending orders, trade history and other useful trading information. Account value This gives you live details of your account balance, including margin used and live profit and loss. Toolbar Change preferences, chat to a client support member, give feedback on the platform.

19 SPREAD BETTING basics and placing your first trade 19 CMC Markets web platform: Icons Opens product library Fund your account Open/create a watchlist Open factsheets Opens a news window Remove a product from the watchlist Insights Close a position Account Print positions or trade history Education zone Logout Live chat Preferences Alerts Economic calendar Pattern recognition scanner Feedback

20 SPREAD BETTING basics and placing your first trade 20 A step-by-step guide to placing and managing spread bets Placing your first trade In the past, some customers would trade online whilst others traded over the telephone. However, these days the majority of our customers are choosing to solely deal online. Statistics show that over 99.5% of our trades are transacted online, with customers taking advantage of the many benefits our online trading platforms offer, such as: > Almost instant execution of trades > Access to thousands of live prices > Access to comprehensive product information > Access to a vast selection of trading tools and technical indicators Remember, we offer an execution-only service and are not qualified to give you advice when it comes to making actual trading decisions. Let s look at some spread betting examples... Example 1: Spread betting on a UK company Scenario: Imagine there are rumours that Standard Life (SL) might issue a profits warning due to a rise in insurance claims following an unexpected UK hurricane. You think this will be bad for the share price and you want to profit from any drop in price, so you decide to go online and check what prices we are offering on Standard Life. Using the search function First of all you will need to access the live price for Standard Life. There are two ways to do this: in the Product Library, you can choose to filter by Type or you can use the intelligent search box.

21 SPREAD BETTING basics and placing your first trade 21 A step-by-step guide to placing and managing spread bets 1. Using the Type filter As Standard Life is a company, click on Companies in the main Product Library window. Standard Life is a UK company, so click on Country and choose the UK. Then from Sector, choose Insurance (which covers the insurance stocks). Now choose Standard Life from the list.

22 SPREAD BETTING basics and placing your first trade 22 A step-by-step guide to placing and managing spread bets 2. Using the intelligent search box: Using the search function is easy, just type in part or all of the name, the ticker, or nickname of the product you re looking for and the results will be displayed. As you type, the platform will automatically use live filtering to match all names to what s being typed.

23 SPREAD BETTING basics and placing your first trade 23 A step-by-step guide to placing and managing spread bets You can place a trade from the product library results window or by dragging the product onto an empty part of the screen to open a quote panel. You can trade from any panel that shows a streaming price. This could be within the product library, in a quote panel, a watchlist, a chart or in the account window. Product name. Factsheet button here you can access the product s information, news and chart. Stake size. Before we go any further, let s take a look at an order ticket: Trade direction: BUY (blue) or SELL (orange). Toggle between BUY and SELL order ticket. Your initial margin. Click the buy or sell button to open an order ticket. The sell price of and the buy price of are adjacent to the sell and buy arrows. Value of the position. A pre-determined exit price to take profit at. The current market price at which you can place your trade. Remember that these are real-time prices that are constantly updating. This means that you can watch the price in the order ticket, and you can wait for the right price to place your trade. A pre-determined exit price to minimise loss. We call this transaction based stop loss. Note slippage or gapping can occur. See the glossary for further detail.

24 SPREAD BETTING basics and placing your first trade 24 A step-by-step guide to placing and managing spread bets Now you are familiar with the order ticket, let s continue Step 1 Step 2 Note: The platform will automatically remember your last trade quantity for this instrument and load any subsequent order ticket with this amount. You can turn this feature off if required through preferences. In this example you decide to sell (go short) 2 per point. First click SELL on the quote panel to open an order ticket. Enter 2 in the /pt box. Every point it goes down, you will make 2 and every point it goes up, you lose 2.

25 SPREAD BETTING basics and placing your first trade 25 A step-by-step guide to placing and managing spread bets Step 3 Enter a stop loss amount. By default, the order ticket will pre-fill a stop loss equal to the margin amount this is called a transaction based stop loss, see Module 3 for more details. You can adjust the stop loss level before you place the trade; by price level, approximate amount or number of points away from the current price. You can also choose between placing the trade with a regular stop loss, which is fixed at a certain price, or a trailing stop loss, which moves with favourable market price movements to lock in profits. See Module 3 for more details on stop losses.

26 SPREAD BETTING basics and placing your first trade 26 A step-by-step guide to placing and managing spread bets Step 4 Step 5 Note: When you place a trade, a confirmation screen will appear: Click confirm again to place this trade. To turn off this confirmation, for quicker order placement, click on the box shown, or change in preferences. Enter a Take Profit price or an approximate cash amount at which you want to exit the trade should you be in profit. You can find out more about risk management and take profit orders in Module 3. Click Confirm. Within a few milliseconds, a confirmation screen will verify the trade was placed successfully.

27 SPREAD BETTING basics and placing your first trade 27 A step-by-step guide to placing and managing spread bets Step 6 To view the trade click on the Account button on the navigation dock and select the Positions tab. Value of position. Stake shown in pounds per point. Real-time profit or loss per trade in account currency. Add/edit stop loss and take profit here. Current market price to sell or buy. TIQ TIP Close trade You can even adjust risk management levels directly on the charts. Click on the Factsheets button on the order ticket or in your account to open the chart to see for yourself. This is explained in more detail in Module 3. Product name. Direction of trade BUY or SELL. Trade entry price. Total margin for all open trades. Margin required per trade. Total value of all open positions. Total profit/loss for all open trades in real time. This is the amount you will have in your cash account if you close out all positions now.

28 SPREAD BETTING basics and placing your first trade 28 A step-by-step guide to placing and managing spread bets Step 7 You can close the trade by clicking on the Account button in the navigation dock then selecting the Positions tab. Then click on the close trade button (x) to open an order ticket which will allow you to close your trade. On the order ticket, click Confirm to close the trade at the market price shown.

29 SPREAD BETTING basics and placing your first trade 29 A step-by-step guide to placing and managing spread bets Did you know? When a trade is closed, any stop loss and take profit orders, relating to the trade, are automatically closed too. The order will be cleared from the Positions tab and moved into the History tab: Example 2: Spread betting on an index We will now show an example of how to spread bet on an index. Indices are some of the most popular products traded by our customers. We do not call the indices by their familiar names, we name them with respect to the specific country they are from. Below is a list of some of the major indices and what we call them: FTSE 100 UK 100 Dow Jones US 30 CAC 40 FRANCE 40 DAX 30 GERMANY 30 S&P/ASX 200 AUSTRALIA 200 S&P 500 US SPX 500 So that s a spread bet on a UK company. Now let s look at an index spread bet, which is just as straightforward. A large percentage of our customers spread bet on the indices available on our platform because there is always a lot of focus on the performance of indices in the media. NASDAQ 100 US NDAQ 100 Nikkei 225 JAPAN 225

30 SPREAD BETTING basics and placing your first trade 30 A step-by-step guide to placing and managing spread bets Scenario: It is approaching Christmas and you think that the UK 100 index will increase in value due to successes in the retail sector. Buying the UK 100 index will allow you to profit if the rise occurs. So you decide to go online and check what prices we are offering on the UK 100. Step 1 Search for the UK 100 index using the search function in the product library. Then click on the BUY price to open an order ticket. You first need to access the live price for the UK 100 and once again you can choose to use the filter or the search function to find it in the product library. For this example, we will use the search function, which is the easiest and fastest way. Using the search function is simple, just type in all or part of the product s name.

31 SPREAD BETTING basics and placing your first trade 31 A step-by-step guide to placing and managing spread bets Step 2 You decide to buy 1 per point worth of the UK 100 index. On the order ticket, enter 1 into the /pt box. Step 3 Once you have specified your take profit and stop loss levels, click Confirm. A confirmation screen will verify that the trade was placed successfully. It will show your stake, the price you bought at, as well as the prices that your stop loss and take profit orders are placed at. Enter 1 under /pt. Set your take profit and stop loss levels. That s how straightforward it is to spread bet on an index on our platform.

32 SPREAD BETTING basics and placing your first trade 32 Summary Now you should: > Understand how spread betting works > Understand the benefits of having a spread betting account with CMC Markets > Know how to organise your trading dashboard and recognise all the different features > Know how to search for a specific product in the product library and use the search filters Name three benefits of spread betting over traditional share trading. With CMC Markets, you can spread bet using four different types of platform. What are they? If you bought 200 per point of Vodafone shares at and the price then went up by 10p, what would your profit be if you closed your bet at this new price? Click here to reveal answers > Be able to place your first trade.

33 SPREAD BETTING basics and placing your first trade 32 Summary Now you should: > Understand how spread betting works > Understand the benefits of having a spread betting account with CMC Markets > Know how to organise your trading dashboard and recognise all the different features > Know how to search for a specific product in the product library and use the search filters > Be able to place your first trade. Name three benefits of spread betting over traditional share trading. Built in commissions and no stamp duty, access to margin, profit from rising and falling markets, cross market opportunities, speed of execution, no capital gains tax. With CMC Markets, you can spread bet using four different types of platform. What are they? Your computer, an ipad, an iphone or an Android device. If you bought 200 per point of Vodafone shares at and the price then went up by 10p, what would your profit be if you closed your bet at this new price? Your profit would be 2,000 ( 200 x 10 points) Click here to hide answers

34 SPREAD BETTING basics and placing your first trade 33 Glossary Term Definition Term Definition Bar charts Bear Bid-Offer spread Blue-chip Breakout trading Bull Bullion Capital CFD Bar charts show a series of plotted bars. Each bar shows the opening price, the highest price, the lowest price and the closing price for a period of time. An investor who has a negative opinion about a market, believing prices will fall. A Bear market is one where share prices across the entire market are generally, and consistently, falling. The difference between the buying price (bid) and the selling price (offer) of a product. A blue-chip company is seen as a solid, safe investment. The company will almost certainly be large, well-established and profitable, with a reputation for quality and maintaining profitability. Trading strategies that advise entering trades once price breaks through a defined resistance or support level. New long (buy) positions are entered into when price breaks through a resistance level, while new short (sell) positions are entered into when price breaks through a support level. These strategies are based on the view that once price breaks through a support or resistance level, a new trend is likely to begin. An investor who has a positive opinion about a market, believing prices will rise. A Bull market is one where share prices across the entire market are generally, and consistently, rising. Precious metal, like gold, silver, platinum or palladium, in the form of bars or ingots. The wealth, either monetary or in assets, owned by an individual or company. CFD stands for Contract For Difference. CFDs were developed to allow investors to receive all the benefits of owning a stock without having to physically own the stock. In other words, you cannot take delivery of a CFD, so you have to settle the difference between where you bought the contract and where you sold it. The difference is either profit or loss. Charting Close out Closed position Closing price Commodity Consumer Price Index (CPI) Contingent order Core inflation A range of techniques that use charts of past prices, along with other indicators, to anticipate future price movements. Selling a long position or buying a short position, which closes the position, so that you no longer have any exposure to changes in market price. A position that has been closed so that you no longer have any exposure to changes in market price. A position is closed by making an equal and opposite transaction, for example: selling 1,000 BT shares after buying 1,000 BT shares. This would automatically close the position. The closing price is the last price for a product at the time the market closes. A physical good, such as food, metal or fuel, that is interchangeable with other commodities of the same type. The quality of a commodity may differ slightly, but it is basically uniform across all producers, as any commodities that are traded on an exchange must meet specific minimum standards. A commodity is any basic good that investors can buy or sell. Some popular commodities include: crude oil, coffee, gold, natural gas, silver, corn, sugar, cotton and wheat. An index that measures the change in the price of goods and services purchased by consumers. The figure measures the average change over time in the price of a sample of various common goods and services purchased by typical urban households. This is an order that involves two or more transactions being executed together. One order s execution is usually dependent on the execution of the other. An example of a contingent order would be to sell one specific security if another specific security is bought. A measure of inflation that excludes items that are subject to volatile price movements. Vegetable prices are an example of items whose prices fluctuate widely based on seasonal conditions. These products are excluded from the calculation as they can give a false measure of inflation as prices can diverge from the overall trend of inflation.

35 SPREAD BETTING basics and placing your first trade 34 Glossary Term Definition Term Definition Corporate action Cross rate Any event that brings about a change to a company that impacts its shareholders and bondholders. These events are usually approved by the board of directors but sometimes shareholders are also allowed to vote. Examples of corporate actions include: dividend payments, mergers, acquisitions, spin-offs, rights issues and stock splits. An exchange rate between two currencies, both of which are not the official currency of the country that the quote is given in. Cross rate can also refer to currency quotes that don t involve the US dollar. Dow Jones Industrial Average Economic drivers The Dow is the second oldest stock market index in the US and it s the most widely used indicator of the overall condition of the stock market. It measures the performance of a selection of 30 blue-chip, publicly owned companies in the US. The 30 companies are selected by editors of the Wall Street Journal, which is published by Dow Jones & Co. Changes in the economy that lead to changes in the market price of investments such as shares, commodities or property. Currency pair Data releases Day order Diversification This refers to a price quotation of currencies traded in the foreign exchange market. To determine the value of a currency, that currency must be compared to another currency. In currency pairs, the price amount shows how much of the second currency is required to buy one unit of the first currency. These are regular releases of economic statistics that take place around the globe throughout the year. The releases usually come out at regular dates based on a predetermined schedule. The data usually has a varying impact on the financial market, depending on when it comes out and what insights into economies it provides. An order to buy or sell a security that will expire automatically if it s not executed on the day the order is placed. This is an investment strategy that aims to manage risk through variety within the investors trading portfolio. Different components of the investor s portfolio are chosen so that they have different characteristics and are from a range of different industry sectors, so it s unlikely that all of the investments will fluctuate in the same direction. The idea is that the portfolio as a whole will display more consistent, stable results than any of the individual components in the portfolio. Ex-dividend date Execution-only stockbrokers Exposure Financial spread betting Financing costs The first trading day on which the buyer of a share is no longer entitled to payment of the current dividend. Stockbrokers who offer customers an inexpensive trading service that doesn t include research or advice on investment style or strategy. Refers to the amount of funds you have invested in a current or open position. So, it s the amount that an investor could stand to lose, or the amount at risk. The larger the size of the position, the greater the exposure, to the possibility of both financial loss and gain. Spread betting is a tax-efficient way to speculate on fluctuations in the prices of thousands of global market products. Investors can bet on whether the price of a product will go up or down. They never actually own the underlying stock, they just speculate on the price movement. Positions that are held open overnight will incur financing costs (often referred to as a holding costs ). If you open a position with CMC Markets with a 5% margin, the overnight financing cost will only be applied to the borrowed amount (95% of the total position). Dividends That part of a company s profit after tax that is distributed to its shareholders. Dividends are usually distributed in cash form, but they can also take the form of stock options. Sometimes dividends are called payouts.

36 SPREAD BETTING basics and placing your first trade 35 Glossary Term Definition Term Definition Fiscal policy Fundamental analysis FSA Gapping Fiscal policy refers to governments spending policies, which have a significant impact on the overall economy. These policies affect interest rates, tax rates and government spending. When a government runs a deficit (spends more than it earns), it is putting more into the economy than it takes out, adding to Gross Domestic Product (GDP). This involves analysing and valuing financial assets based on factors such as news, financial statements and earnings forecasts, company strategy and risk assessments, demand and supply forecasts, projections of future economic growth, industry developments and government policy. In fundamental analysis, an investor uses real data to evaluate a stock s value rather than using charts and technical analysis to make trading decisions. The Financial Services Authority is the authority responsible for regulating the financial services industry in the UK. One of the FSA s roles is to regulate the conduct of brokers and dealers in securities, options, shares, CFDs and futures. Gapping occurs when the price of a stock makes a sharp move up or down while markets are closed. So when the markets re-open the price is significantly higher or lower than it was when they closed. Illiquidity Industrial Production Index Inflation Inflation rate Initial margin Intra-day trading An asset is in this state when it is difficult to sell or exchange it for cash without a loss in value. Illiquid assets can t be sold easily because of a lack of demand. CMC Markets provides liquidity by constantly quoting a bid and offer spread. Also see Liquidity. This is an economic report that measures changes in output for the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. A statistical indicator that measures changes in the economy or a securities market. Indices often serve as barometers for a given market or industry and benchmarks against which financial or economic performance is measured. The increase in the general price of goods and services. A measure of the inflation that occurs in a given period - a year or calendar quarter, for example. The inflation rate shows us how quickly the general price of goods and services is rising. The amount of cash, or other approved funding, that a trader is required to pay in order to open a new position. Trading where positions are opened and then closed out within the same trading day. Gross Domestic Product (GDP) Future Hedging The value of all final goods and services produced by a country s economy in a given period of time (usually a quarter or a year). A standardised, exchange-traded contract that requires two parties to exchange an asset such as a commodity, bond, currency, or stock index, at a specified price agreed today, but with delivery occurring on a specified future date. Unlike options, futures contracts incorporate an obligation to buy. A way of reducing the risk of losses that may occur if investments move in the wrong direction. This usually involves opening companion investments, using CFDs or futures contracts, that will offset potential losses. Japanese candlestick charts Leverage LIBOR Japanese candlestick charts are similar to bar charts in that each candle shows the opening price, the closing price, the high price and the low price for the period. The candles are either green or red, depending on whether the closing price is higher than the opening price (green) or below it (red). The main body, or wax, represents the range between the opening and closing price and the wicks show the highs and lows. The use of borrowed capital to fund a position. It allows the trader to open a position worth more than their initial investment. This has the effect of amplifying profit or loss. The London Interbank Offered Rate (LIBOR) is the interest rate that banks charge each other for loans.

37 SPREAD BETTING basics and placing your first trade 36 Glossary Term Definition Term Definition Limit order Line charts Liquidity Long Long-term trading Margin requirements Market maker Market capitalisation (MCAP) An order to buy or sell a product at a specific price. The order will only be executed at the first available price, that is equal to or more/less than the target price specified (depending on direction of trade). If the broker can t fulfil the limit order, it lapses. Line charts are created by connecting a series of data points, usually past price closes, with a line. They are the most basic type of charts used in finance. The level of continual buy and sell activity making up the market demand for shares and indicating the ease with which investors can undertake transactions. Buying an investment with the view that the value of the product is going to go up. The opposite of short (selling an product). In the context of CFDs or spread betting, long-term trading refers to strategies where the average duration of open positions would be between a few days and several months. Investors are asked to deposit a small percentage of the overall cost that would be required if they were to purchase the equivalent shares in the physical market. Even though the investor s outlay is small in comparison to the value of the whole position, the investor will still be exposed to the same potential profit and loss. This means that your potential return on investment is magnified, as are your potential losses. This is an organisation or company that accepts the risk of holding a certain number of shares in a security to facilitate trading of that security. Market makers compete for customer orders by quoting buy and sell prices. Buy and sell prices are quoted to customers without knowing whether they wish to buy or sell. When an order comes through, the market maker sells from its own inventory of shares immediately. Market capitalisation refers to the value of a company s shares. The figure is reached by multiplying the number of shares that have been purchased by investors by the current share price. Investors find the MCAP figure useful for determining the size of a company. Medium-term trading Mid price Monetary policy NASDAQ - National Association of Securities Dealers Automated Quotations System New Issue Non-Farm Payrolls employment In the context of CFDs and spread betting, this refers to strategies where the trader is prepared to hold positions open for longer than one day but where the average duration of open positions would be no more than a few days. This is the mid point of the bid/offer (buy/sell) spread quoted by market makers like CMC Markets. It s also the price shown in the share price pages and market reports in the financial media, but not the price at which you could necessarily expect to conclude a deal to buy or sell. The price at which you buy will be higher and the price at which you sell will be lower than the mid price, in almost all circumstances. The actions of central banks to set interest rates and control the amount of money in an economy, with the aim of keeping inflation and unemployment at acceptable levels. The second-largest stock exchange in the US, specialising in high-tech and internet-related companies, such as Microsoft. The movements of the NASDAQ can have a significant effect on the UK markets, particularly the recently-launched techmark index of technology, media and telephony companies. New issue refers to a security that is registered, issued and is being sold to the public on the stock market for the first time. Offering shares to the public is a way of raising capital for further expansion. Also known as the Initial Public Offering (IPO). This data release is a monthly survey statistic of non-farm payrolls employment across the US and is one of the most important and closely watched economic releases in the world. Generally released on the first Friday of the month, this figure doesn t include general government employees, private household employees, non-profit organisation employees and farm employees.

38 SPREAD BETTING basics and placing your first trade 37 Glossary Term Definition Term Definition OCO - One Cancels the Other Online trading Option Out-of-hours trading Open position OTC (Over The Counter) Producer Price Index (PPI) This is an order type that requires that if one part of the order is executed, then the other part is automatically cancelled. For example, if you buy an product you could set a take profit order and an order to close out the position if price drops to a certain level. When either order is executed the other will automatically be cancelled. Within the Next Gen trading software this process is automatic, there is no need to link orders together. The act of buying or selling financial securities via the internet using a broker s online trading platform. The right, but not the obligation, sold by one party to another, to buy or sell a security or financial asset at an agreed price during a specified period of time or on a specific date. There are two types of options: American style and European style. American options can be exercised at any time between the purchase date and the expiry date and European options can only be exercised on a single day, usually its expiry date. CMC Markets allows customers to trade selected major stocks and indices outside of the normal trading hours. A long or short position which has not been closed out by an equal and opposite position. A market conducted directly between dealers and principals via a telephone and computer network, rather than via a regulated exchange trading floor. The foreign exchange market is a great example of an OTC market, often referred to as the Interbank market. A statistic that measures changes in the price of finished goods and services sold by producers. Portfolio Position sizing Purchasing Managers Index (PMI) Resistance Retail Sales Rights Issue Sector A collection of securities owned by an investor. The size of a position within a particular portfolio. It s also associated with a risk management technique whereby an investor calculates the size of each new trading position so that the maximum likely loss on the trade does not exceed a certain amount or a certain percentage of their trading capital. The PMI is an index based on a survey of corporate purchasing managers (from construction, services and manufacturing) on the state of the industry as they see it. PMI is a good indicator of the economic health of the manufacturing sector. A price level that the market doesn t rise above for some time. When price rises to a resistance level the weight of selling outweighs buying and price is pushed down again. A number of different trend peaks often occur at a resistance level. This figure represents the total of durable and non-durable goods sales by retailers to consumers. Services are largely excluded from this statistic. An additional issue of shares by a company to existing shareholders, usually at a discounted, price. A means for the company to raise new funds for further development or to finance a new acquisition. As an example: A two-for-five rights at 145p means that the existing shareholder has the right to acquire a further two shares for every five currently held at a new cost of 145p per share acquired. An area of the economy, usually a subset, in which companies have similar or related products or services. Examples of different sectors include: oil and gas, telecommunications, property and transportation. Pip The smallest amount by which a foreign exchange quote can vary. It s the very last digit of a currency quote. For example, if the sell price for EUR/USD was and it increased to , it has increased by 1 pip. If it increases to , it has increased 100 pips. Pip stands for percentage in point. Short trading A form of trading where the initial transaction is to sell. A trader would sell if they believed the price of a product was going to go down in value. The position is closed with a buy transaction. The trader will profit if price falls and experience losses if it rises.