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The following are definitions and explanations of the terms and industry
jargon commonly associated with Financial Spread Betting.
After hours trading
Trading a market outside of its regular trading hours. Also called
'out of hours trading'.
Ask price
The quoted price at which an investor can buy a security. Also called the 'offer
price'.
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Bear
A 'bear' is pessimistic about the market and expects it to fall. A
'bear market' is a term used to describe a falling market, or one
that is trending lower. The opposite of a 'bull'.
Bid price
The quoted price at which an investor can sell a security.
Bid-offer spread
The difference between the buy and sell prices.
Binary Bet
A Binary Bet is a fixed-odds trade on a proposition
with only two possible outcomes (win or lose), quoted in the form of
a Spread Bet.
Blue chip
Blue chip companies are large, well established and typically
conservatively managed.
Bond
The purchaser of a bond effectively lends money to a company or
government in return for a fixed level of income (the 'coupon') and
the return of their investment at the end of the bond's life ('the
maturity date').
Bull
A 'bull' is optimistic about the market and expects it to rise. A
'bull market' is a term used to describe a rising market, or one
that is trending higher. The opposite of a 'bear'.
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CAC 40
The index of 40 of the largest companies on the official list of the
French Stock Exchange.
Capital Gains Tax (CGT)
A UK tax on investment profits. Spread Betting profits are free of
CGT under current UK tax laws. See 'Tax treatment' for a more
comprehensive explanation of our understanding of the tax rules
regarding Spread Betting.
Closing price
The price at which a product was traded to close an open position.
See 'closing trade'. It may also refer to the price of the last
transaction in a day's trading session.
Closing trade
A trade of equal size to a previous one, but in the opposite
direction, therefore closing out the open trade and resulting in a
net profit or loss.
CME
The Chicago Mercantile Exchange.
Commodities
Physical products, such as metals (e.g. gold and silver), energies
(e.g. oil, gas), and agricultural products (e.g. corn and wheat).
Contract periods
The months that are available to trade with quarterly Spread Bet
contracts, typically March, June, September and December.
Consumer Price Index
The Consumer Price Index, used by the government as a measure of
inflation.
Currency cross
The exchange rate between two currencies.
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Daily bet
A Spread Bet contract that expires at the end of the day.
DAX 30
The index of 30 of the largest companies on the official list of the
German Stock Exchange.
Day trading
The opening and closing of a position or multiple positions within
the same trading day.
Derivative
A financial contract, the value of which is derived from that of an
underlying asset (e.g. an equity, index, sector, currency or
commodity). Spread Betting is a financial derivative product.
Dividend
The portion of a company's retained profits paid to shareholders.
Dow Jones Industrial Average
The index of 30 of the largest companies on the official list of the
New York Stock Exchange.
Down bet
A Spread Trade made in anticipation of a falling price. Also
referred to as a 'sell' or 'going short'.
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Exchange Traded Fund (ETF)
An Exchange Traded Fund tracks the price of a specific index or
basket of securities that would otherwise be difficult and
cost-ineffective to gain direct exposure to - for example an
emerging-market economy.
Ex-dividend
Purchases of shares made while a share is 'ex-dividend' are not be
eligible for the most recent declared dividend. A share will
theoretically fall by the value of the declared dividend on the
ex-dividend date.
Expiry date
The date on which a Spread Bet expires. The trade is automatically
closed on this date unless it is closed beforehand or rolled over to
the next expiry date.
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Financing
The cost of keeping a position open until the expiry date or until
the position is closed. Financing is payable on long positions, and
receivable on short positions.
Foreign exchange
The exchange of two different countries' currencies. The exchange
rate is the price at which the two currencies are exchanged,
determined by the relative strength of the two individual
currencies.
Forex
An abbreviation for 'foreign exchange'.
FSA
The Financial Services Authority is the governing body that
regulates the activities and products of the UK financial services
industry, including Spread Betting.
FTSE-100
The index of the 100 largest companies on the official list of the
London Stock Exchange, as measured by market capitalisation.
FTSE-250
The index of the 100-350 largest companies on the official list of
the London Stock Exchange, as measured by market capitalisation. The
FTSE-250 does not include those companies in the FTSE-100.
FTSE-350
The index of the 350 largest companies on the official list of the
London Stock Exchange, as measured by market capitalisation. The
FTSE-350 comprises those companies in both the FTSE-100 and the
FTSE-250.
FX
An abbreviation for 'foreign exchange'.
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Gapping
In times of high volatility (for example following a profit
warning), a stock may jump - or 'gap' - to a certain level, without
actually trading at a price in between. Also known as 'slippage'.
Gapping through
When the price of an instrument jumps to a price above or below a
stop loss, without actually trading at the stop loss price. A
Guaranteed Stop Loss protects against gapping.
Gearing
With derivative trading gearing relates to the concept of trading on
margin. You control a certain value of an asset by paying just a
fraction of that value, and effectively borrowing the rest. This can
significantly increase both profits and losses relative to the
initial outlay, and is why Spread Betting is riskier than normal
share dealing. Also known as 'leverage'.
Gilts
UK Government Bonds. They are so called because the certificates
were originally gilt edged.
Going long
A position taken in anticipation of a rising price. Also referred to
as a 'buy'.
Going short
A position taken in anticipation of a falling price. Also referred
to as a 'sell'.
Good For The Day (GFD)
An order, which if not filled, expires at the close of business on the
day it is placed.
Good Till Cancelled (GTC)
An order that will be carried forward indefinitely until it is
either filled or cancelled.
Grey market
A term for trading on an informal market that is not actually listed
on any exchange.
Guaranteed Stop Loss
An order that guarantees the trader will receive their chosen stop
loss price, regardless of whether it is worse than that level by the
time the order is executed in the market, in return for a small
premium.
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Hedging
A hedge is reducing the risk of an existing position by taking an
offsetting position in a related security. For example an investor
who holds a share (i.e. is 'long') could hedge the position by
taking an equal 'short' position in a Spread Bet on the same stock.
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Income tax
A UK tax on income. The Inland Revenue has however unfortunately
left the rule regarding Income Tax rather a grey area. Our best
understanding is that profits are free of Income Tax if you can
demonstrate you have another source of income on which you are able
to support yourself - such as a salary or pension. If you rely
solely on your profits from Spread Betting to live, you may have to
pay Income Tax on those profits. If you are unsure of your tax
position you should contact an accountant.
Index
A statistical indicator that represents the value and performance of
the stocks it constitutes.
Initial margin
The initial deposit required to open a Spread Trade, calculated as a
small percentage of the overall trade value.
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Leverage
With derivative trading leverage relates to the concept of trading
on margin. You control a certain value of an asset by paying just a
fraction of that value, and effectively borrowing the rest. This can
significantly increase both profits and losses relative to the
initial outlay, and is why Spread Betting is riskier than normal
share dealing. Also known as 'gearing'.
LIBOR
The London Inter Bank Offer Rate is the reference level, fixed
daily, at which London banks will lend money to each other.
LIFFE
The London International Financial Futures and Options Exchange.
Limit order
An order to buy or sell at a price better (i.e. higher or lower,
respectively) than the current market price.
Liquidity
The volume of business that is or can be transacted in the market.
Highly liquid markets typically have narrow spreads and can
accommodate large deal sizes. Illiquid markets tend to have wider
spreads, small deal sizes and are often very volatile.
Linked order
Two orders placed against the same trade, for example a stop loss
and a limit-sell on a long position. If one order is executed the
other one will automatically be cancelled. Also known as 'One
Cancels Other'.
Long
A position taken in anticipation of a rising price. Also referred to
as a 'buy'.
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Maintenance margin
The ongoing deposit required on an open a Spread Trade. If a position
has moved unfavourably since it was opened, a deposit further to
that paid as the initial margin may be required in order to keep the
position open (known as a 'margin call'). Maintenance margin is also
known as 'variation margin'.
Margin call
A request to the trader to pay further funds into their account, in
order to keep a losing position open. The amount of further funds
required is determined by calculation of the 'variation margin'.
Margin factor
The multiplication factor used to calculate the margin required to
open a Spread Trade. For indices the factor is usually a number, so
the margin requirement is the stake multiplied by the number. For
equities it is usually a percentage, so the margin requirement is
the stake multiplied by the price, multiplied by the percentage.
Also known as the 'Notional Trading Requirement'.
Margin requirement
The initial deposit required to open a Spread Trade. It is typically
calculated using a specified margin factor, and will be a small
percentage of the overall trade value.
Market capitalisation
The market value of a company, as calculated by multiplying the
total number of shares in issue by the share price. Often
abbreviated to 'Market cap'.
Mid-price
The price half-way between the buy and sell prices.
Momentum trading
A strategy that uses various technical indicators to identify trends
in a market, which can be exploited for profit. ‘Trend trading’ and
‘Swing trading’ are terms that are often used synonymously with
Momentum trading, although they are sometimes used to signify the
same strategy employed over different timeframes.
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NASDAQ 100
The index that reflects the performance of the 100 largest
technology companies in the US, as measured by market
capitalisation.
Nikkei 225
The index of the price-weighted average of 225 companies on the
official list of the Tokyo Stock Exchange.
Normal Market Size
The amount of shares that can be traded at the current market price.
This is calculated on the previous year's average daily turnover of
each individual stock - currently 2.5% of the total volume of shares
for each company. Market makers are not obliged to provide a quote
for a transaction above the Normal Market Size.
Notional Trading Requirement
The multiplication factor used to calculate the margin required to
open a Spread Trade. For indices the factor is usually a number, so
the margin required is the stake multiplied by this number. For
equities it is usually a percentage, so the margin required is the
stake multiplied by the price, multiplied by this percentage. Also
known as the 'margin factor'.
NYMEX
The New York Mercantile Exchange.
NYSE
The New York Stock Exchange.
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Offer price
The quoted price at which an investor can buy a security. Also called the 'ask
price'.
One Cancels Other (OCO)
Two orders placed against the same trade, e.g. a stop loss and a
limit-sell on a long position. If one order is executed the other
one will automatically be cancelled. Also known as a 'linked order'.
Option
A financial derivative contract that gives the right, but not the
obligation, to buy or sell a certain asset at a fixed price (called
the 'strike price') at a fixed point in the future (the 'expiry
date'). Spread Betting on Options is a tax-efficient way to trade
them, as Spread Bets are currently exempt from UK Capital Gains Tax
(CGT).
Order
An instruction to execute a trade only when certain conditions are
met. 'Limit orders', 'stop orders', and 'stop losses' are the orders
most commonly used with Spread Trading.
Our quote
The two-way (bid-offer) price quoted by a Spread Betting company, on
which trades can be placed. This will rarely be the same as the
market price.
Out of hours trading
Trading a market outside of its regular trading hours. Also called
'After hours trading'.
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Quarterly bet
A Spread Bet based on a three-monthly cycle - March, June, September
and December. Quarterly bets typically expire towards the end of the
expiry month, but can be closed out any time before the expiry date.
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Resistance level
In Technical Analysis, the level above which it is supposedly
difficult for an asset's price to rise.
Rights Issue
The offer from a company to its existing shareholders to buy a
proportional number of additional shares at a given price (usually
at a discount) within a fixed period.
Rolling daily bet
A Spread Bet contract that automatically closes and then re-opens at the same
mid-price each business day until it is closed.
Rollover
Extending a Spread Bet beyond its expiry date.
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S&P 500
The index of 500 of the largest companies on the official list of
the New York Stock Exchange.
Sector
A group of shares that are similar with respect to type and
industry, e.g. the Banking or Mining sector.
Security
The collective name for any financial instrument, such as a stock,
share, index, currency or commodity.
Short
A position taken in anticipation of a falling price. Also referred
to as a 'sell'.
Slippage
In times of high volatility (for example following a profit
warning), a stock may jump to a certain level (either up or down),
without actually trading at a price in between. Also known as
'gapping'.
Spread Trading
Another term for Spread Betting. Spread Trading is officially called Spread
Betting in order to maintain its tax-free status - see 'Tax
treatment' for an explanation of our understanding of the current
tax rules regarding Spread Betting / Trading.
Stake
The size per unit of movement for a Spread Bet, e.g. £1 per penny
movement for an equity Spread Bet.
Stamp Duty (UK)
A tax of 0.5% levied on purchases of UK equities. Spread Bets are
exempt from Stamp Duty under current UK laws.
Stop loss
An order which closes out a position at a certain price, chosen by
the investor. An ordinary stop loss order may be executed at a price
worse than the chosen level, if the price 'gaps' past that level.
Stop order
An order to buy or sell at a price worse (i.e. higher or lower,
respectively) than the current market price, in order trade with the
momentum.
Support level
In Technical Analysis, the level below which it is supposedly
difficult for an asset's price to fall.
Swing trading
A strategy that uses various technical indicators to identify trends
in a market, which can be exploited for profit. ‘Trend trading’ and
‘Momentum trading’ are terms that are often used synonymously with
Swing trading, although they are sometimes used to signify the same
strategy employed over different timeframes.
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Tax treatment
Profits from Spread Betting are free of UK Capital Gains Tax (CGT)
whatever your personal circumstances. The Inland Revenue has however
unfortunately left the rule regarding UK Income Tax (IT) rather a grey
area. Our best understanding is that profits are also free of IT if you
can demonstrate you have another source of income on which you are able
to support yourself - such as a salary or pension. If you rely solely on
your profits from Spread Betting to live, you may have to pay IT on
those
profits.
Technical Analysis
The use of charts and other visual representations of historical
data to identify trends, and attempt to predict the future
performance of financial markets and instruments.
Trend trading
A strategy that uses various technical indicators to identify trends
in a market, which can be exploited for profit. ‘Swing trading’ and
‘Momentum trading’ are terms that are often used synonymously with
Trend trading, although they are sometimes used to signify the same
strategy employed over different timeframes.
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Up bet
A Spread Trade made in anticipation of a rising price. Also referred
to as a 'buy' or 'going long'.
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Variation margin
The ongoing deposit required on an open a Spread Trade. If a position
has moved unfavourably since it was opened, a deposit further to
that paid as the initial margin may be required in order to keep the
position open (known as a 'margin call'). Variation margin is also
known as 'maintenance margin'.
Volatility
The measure of the uncertainty or risk regarding the typical size of
changes in an instrument's value.
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