Glossary of spread betting terminology
- ETFs – Exchange Traded Funds are shares on different sectors within the stock market. A spread trader can either place a spread trade on the ETF share or a sector bet. Sector bets are generally viewed as the trading vehicle in the UK market because UK ETFs of the LSE have little or no liquidity.
- Eurex – The largest derivatives market in the world, dealing primarily with European derivatives. It is owned by the German and Swiss stock exchanges. The products that trade here include bonds, European stocks and STOXX indexes.
- Euribor – 3 month European interest rates, known also as 3 month money or short rates
- EuroSwiss – 3 month Swiss interest rates, known also as 3 month money or short rates.
- Euro – European currency
- Eurodollar – 3 month US interest rates, known as 3 month money or short rates. Not to be confused with the Euro against the Dollar exchange rate.
- EuroStoxx 50 – 50 largest European stocks, denominated in Euros. London, Swedish and Swiss stocks are therefore not included.
- Expiry – the date on which your spread trade will be good until- when it “closes” and ends. If trading the March FTSE then this expires on a certain day in March. Different products have different days of expiry so spread traders must check and be aware of these dates beforehand. If a spread trader has a position in an about to expire contract he can either cover it, let it expire into cash or roll it over into next month/quarter.
- Earnings – the total amount a company has earned over a certain period of time (usually quarterly or yearly), based on the amount of revenue minus expenses, including taxes.
- Earnings per share – a company’s earnings’ divided by the amount of outstanding shares the company has issued.
- Fill or filled – A completed order – an order that has been filled.
- Fixed Income – Bond market spread bets.
- Flat – Having no position (short or long).
- FTSE 100 – an index of the largest one hundred stocks traded on the London Stock Exchange.
- Fundamental analysis – a way to research an investment opportunity based on the company’s core fundamentals, such as how “hot” its products are, how it may perform in a slow economy, how good its board members are, etc.
- Futures Contract – A legal agreement to make or take delivery of a specified instrument, a commodity such as coffee or a financial instrument such as shares for example. Delivery/settlement takes place at a fixed future date at a price determined at the time of dealing.
- FX – Foreign Exchange.
- Gap – A jump in price creating a range of prices in which no trading has taken place. They are generally caused by sudden unexpected news and are more common with less liquid securities.
- Gearing – also known as leveraging. If a trader buys £1000 of Barclays shares in the cash market and it rises by 10%, his profit will be £100. But if he buys the same position using a spread trade he may only have to put up a deposit of £100, if the stock moves 10% higher his profit on capital invested will be £100 or 100%, this is gearing.
- Gilt – UK bonds are called Gilt Edged Securities, or Gilts for short.
- GTC – An order to buy or sell a spread trade that remains operative until the order is executed or cancelled.
- Guaranteed Stop Loss – With a traditional stop loss a spread trader may suffer from slippage, but a guaranteed stop is always filled at the price the order was given at, and for this privilege there is a small charge to pay.
- Hang Seng index – Hong Kong’s equivalent of the Dow or FTSE 100 – an index of the thirty-three largest companies traded in the Hong Kong Stock Exchange.
- Hedging – placing a spread trade on another share or commodity that you’ve traded or currently own in order to protect yourself from greater losses (“hedge your losses”) from your primary investment, assuming that the hedged trade goes in an opposite or less severe direction.
- Index– a weighted average of a specific group of stocks within that index, such as the Dow Jones or FTSE 100, a good barometer of how that market is fairing, also a commodity which you can spread trade.
- Illiquid – A market that doesn’t have much volume, usually characterised by a wide bid-offer spreads. They are therefore usually expensive to trade
- Indication price – A quote that is not a firm dealing price. Perhaps a client has a spread trade position in the FTSE but only wants to check a price without dealing.
- Initial margin – Also called Notional Trading Amount or Deposit Factor. The amount of cash money or credit that is needed to place a spread trade. For example if the initial margin was 300 on the FTSE 100 and a spread trader wanted to buy the bet risking £1 a point, the trader would have to have £300 in his account or access to credit.
- Last Dealing Day – The final day of dealing in a spread bet before it expires. Be aware that not only can the last dealing day be different for certain spread bets but so can the actual time of expiry.
- Leverage – See gearing
- LIBOR – London InterBank Offered Rate, the 3 month money rate set at 11.30am every day
- Limit order – an order placed with your broker or spread trading company to buy or sell a stock or commodity at a specific price, most often a higher or lower price than what it is currently trading at.
- Liquidity or liquid – The amount of business conducted in a spread trade market. Where possible you always want to trade products that have good liquidity primarily because they are cheaper to trade due to tight bid-offer spreads. An example of a liquid stock would be any FTSE 100 company, while most stocks traded on the PLUS market are deemed very illiquid.
- Long Bond – Another name for the US 30 year bond.
- Long Position – Having bought, but not yet sold. A long position is entered with the aim of profiting from an increase in price. Opposite of Short Position.
- Long trade – A position that will make money in a rising market. As in ‘I’ve gone long on the FTSE’.
Leave a Comment