Spread Betting Glossary: Part 3 (M to W)

Financial spread betting terms defined and explained to make sure you understand the terminology when it comes to spread trading.

• Maintenance margin – Spread trades are margined products and therefore all trades are credited/debited in real time as the trade moves in either direction. Maintenance margin can therefore be positive or negative. Contrast this to the cash stock market where profits/losses are only realised when the stock is physically sold.
• Margin – The amount of money needed to deposit with your spread trading company in order to fund a position. With margined products only a percentage of the nominal value has to be lodged in cash, normally between 5-20%.
• Margin call – when you must provide your spread betting company with additional funds for a trade that you made on margin that has gone (or is going) against you and incurred losses. This happens when the amount of your existing funds in your account will not cover the loss.
• Market hours – the official hours a specific exchange is open for trading. The New York Stock Exchange’s market hours, for example, are from 9:30 to 4:00. Many spread trading companies allow you to make trades after the market closes.
• Market Order – An order to buy or sell a spread bet at the current bid or offer.
• Momentum – just like the name implies, a gaining or slowing momentum of a stock price changing with more and more trade volume to the upside or downside. A snowball rolling down a mountain is a good way to think about momentum.
• Mib 30 – Italian Stockmarket index.
• MOC order – ‘Market-on-close’ – An order to cover a spread trade (long or short) on close. If a spread trader was short the Nasdaq 100, by placing a buy MOC order this position would be covered on the close.
• NASDAQ Composite – the index (like the Dow or FTSE 100) of stocks traded on the U.S. NASDAQ market, a good indicator of how tech stocks are fairing. Like other indexes, you can make spread trades on it.
• Net Asset Value (NAV) – a company’s NAV equals the company’s total assets (the value of everything it owns) minus its liabilities (everything that it owes). The “NAV per share” is a company’s NAV divided by how many shares it has outstanding.
• Nikkei – the index (like the Dow or FTSE 100) of 225 stocks traded on the Tokyo Stock Exchange (which can be spread traded as well, like virtually all indexes.)
• Noise – Normal everyday market movement, up and down without really going anywhere. The ebb and flow of everyday movement.
• Notional Trading Requirement (NTR) – See Initial Margin. The value of a derivative’s underlying assets at the spot price. This is the number of units of an asset underlying the contract, multiplied by the spot price of the asset.
• NYSE – the New York Stock Exchange.
• OCO MOC order – Once Cancels Other – Market On Close order.
• OCO order – One Cancels Other order.
• Offer price – the actual price at which you can buy a specific stock, index, or commodity.
• Open positions – Trades in your account’s portfolio that are still active, that have not yet been closed out and finished.
• Opening range – Markets, especially busy ones never really open at one price, rather they are given an opening range (usually the first 2 minutes) where opening orders are filled in.
• Overbought – A term used to describe a market or a stock that has appreciated so rapidly and has generated such excessively bullish sentiment that a near-term decline is highly likely.
• Oversold – A term used to describe a market or a stock that has declined so rapidly and has generated such excessively bearish sentiment that a near-term rally to the upside is highly likely.
• Pairs trade – Another name for a spread trade but done with 2 stocks, usually from the same sector. Buying a spread bet on Barclays and selling short HSBC is an example. The trade makes money if Barclays outperforms HSBC in either an up or down market.
• Pre-market – Spread trading companies will make a market on certain products even before they have opened in the cash market. For example the London Stock Exchange opens at 8am but spread betting companies will normally quote their prices from 7am. Not all markets are offered in pre-market, usually only the biggest and most popular ones.
• Price-to-Earnings Ration (P/E) – the current price of a stock divided by its earnings per share.
• Quote – the current price at which a stock, commodity or index is trading.
• Resistance – The price at which a prior increase was terminated or a future increase is likely to terminate, or where the market expects selling to materialise. For example, if the Nasdaq 100 is trading at 1,200 you may hear pundits report that ‘resistance is expected at 1,225’.
• Roll over – rolling over a trade to another day or beyond its expiry date. To replace an old expiring position with equivalent contracts of a later expiry.
• Settlement price – the price that you got when your order was closed.
• Short – To go or be short or enter a short position is to sell a security in the expectation or hope it will fall in value. This is simpler in derivative markets. Spot markets require the investor to borrow securities so as to sell them and buy them back at a lower price. A cash short sale also requires financing to compensate the securities lender. Derivatives do not face these constraints.
• Shorting – if you think a commodity or stock is going to go down in price, you can sell it now, even though you don’t have any shares, and buy it back later after it’s gone down. In spread trading, you short when you place an order to sell at the bid price.
• Short sterling – The 3 month interest rate contract traded on LIFFE. All spread betting companies offer a market on this contract.
• Short Position – Having sold short, but not yet covered. A short position is entered with the aim of profiting from a price decline.
• Slippage – Relates to stop losses and is the difference between where the stop loss level is and where the order was actually filled. If the stop loss order is to sell £5 of FTSE 100 at 4,150 and is actually filled at 4,148 then the 2 points is slippage. Slippage is normally not a problem in normal markets but in very volatile ones it can be expected.
• Spot – The cash price. The price an immediately deliverable asset – as opposed to the price of a derivative contract based on the spot price of an asset.
• Spread – The difference between the selling price (bid) and the buying price (offer). The difference between the price that an investor can sell or buy a security at any given time. If the FTSE 100 spread bet is quoted at 4,200-4,204 the spread is 4 points.
• Spread Betting – Betting on the move of a spread quoted by a spread betting firm. The spread is around the price of an asset such as a share or commodity.
• Stamp duty – Taxation on a cash share purchase. Derivatives based on the shares do not incur Stamp Duty. Stamp duty is a government tax of 0.5% paid by the buyer on all share transactions. There is NO Stamp Duty with spread bets.
• Sterling – The British Pound.
• Stop Loss – A predetermined price at which a position will be closed to protect against further loss. The use of ‘stop losses’ is the only reliable way for a trader to manage risk. An order to completely or partially exit an open position when the price reaches a certain price. They are designed to limit an investor’s loss on a specific trade.
• Support – The price at which a prior decline was terminated or a future decline is likely to attract buying. If the FTSE 100 is currently trading at 4,300, market participants may well be reporting that they expect support ‘to come in at 4,270’.
• Swap – A contract in which two parties agree to exchange periodic payments. E.g. One payment is at a fixed rate and the other is variable.
• Technical analysis – researching stocks based on specific statistics and tools such as charting.
• Tick – Same as point.
• Trading Range – A market where prices are range bound by a higher and lower price band. Normally markets will range trade when there is little or no news. Relates to Technical Analysis, see above
• TSE – the Tokyo Stock Exchange.
• Up-Bet – Another way to describe a long position or a position which will make money in a rising market. Often referred to as a Long Position.
• Volatility – a measurement of the degree of volatility in a stock’s price going up or down in a short amount of time, a predictor if it will go up or down in sharp moves or not.
• Wall Street – specifically, the actual street on which the New York Stock Exchange is located, but usually used to refer to all US stock exchanges, financial institutions, and the brokers and analysts involved.