What is a Spread Trade?
Spread trading is a tax free, cost effective alternative to traditional share trading. It allows you to speculate on the movement of stocks and shares without using a stockbroker, therefore you do not have to pay commission or fees. We make a spread around the live, underlying market price and you can trade on whether this market will rise or fall.
How does it work?
The "spread" in the phrase Spread Trading refers to the Sell (Bid) and Buy (Offer) price quoted by a spread trading company. This price is calculated by adding additional points around the live (or the estimated future) market price of a financial product. For example, if the Daily FTSE is trading at 4729 our quote might be 4727-4730.
At Saxo Bank Financial Spreads , only small deposits are required to open a new position (as little as £10-£40 for a £1 trade depending on the market concerned). Once you have chosen the market on which you wish to trade, you can then trade the stake of your choice, which will represent your profit or loss per point movement in that market (each market has its own individual maximum allowable stake). You can then trade £1 (or $1 or €1) per point/tick on the movement of spread prices that we quote.You can choose to trade that the market will rise, or alternatively, you can trade that it will fall. If you are right, you will make a profit of your stake multiplied by each point that the market moves in your favour. If you are wrong you will make a loss of your stake multiplied by each point that the market moves against you. For this reason you must be aware that your losses can increase dramatically if the markets move substantially in the opposite direction to your trade (i.e. if you make an up trade in the FTSE 100 and instead of going up it goes down). All spread trading profits are recognised as the winnings of a trade, and are therefore free of Capital Gains and Income Tax.
Try a Demo Account
If you are new to spread trading, we highly recommend that you sign up for our online Demo Account. The Demo Account mirrors our live trading system in all respects, other than the requirement for depositing funds! Used in conjunction with our online Beginners Guide you can really get to grips with the concept of Spread Trading or familiarise yourself with our trading platform before you begin Live Trading.
Why should I spread trade?
Spread trading allows you to trade on a huge variety of financial products in one place and in one currency. You make your trades in one of 3 currencies (Sterling, US Dollars or Euros), which means you do not have to bother with costly exchange rates and can, in general, trade in your own currency. Spread trades are margined trading products, which means you need only deposit a small percentage of the full value of your trade leaving your excess capital to continue working hard elsewhere. For example, a £1 trade on a share is the equivalent of buying (or selling) 100 real shares. On most shares our minimum Initial Margin Requirement (deposit) is 3-5% of the underlying value of the shares which means that you can take a trade in a share with as little as 1/30th of the money required to buy the actual real shares from a stock broker. Also, because Saxo Bank Financial Spreads is not a stockbroker, we do not charge commission or fees. We make our profit from the spread we add to the underlying market prices, which result in our quotes. Plus, don’t forget, that UK residents benefit further because your profits do not incur Capital Gains and Income Tax. Whilst spread trading offers many benefits, it is important to note that it carries a high level of risk to your capital, so you should only trade with money you can afford to lose. Whilst we offer compulsory stop-losses, it is possible for you to lose more than your initial deposit. To read more about the risks, please click here.
What are the advantages?
Bull or Bear
One of the most obvious advantages of spread trading is the unique opportunity to go short of (or sell) a stock or share. You can therefore experience the benefit of either a rising or falling market!
No Commission or Fees
Because Saxo Bank Financial Spreads is not a stockbroker, we do not charge commission or fees. The only “fee” is the spread we charge on the prices that we quote.
Gearing
Spread trading also allows you to trade in sizes smaller than those usually available in the underlying market. Similarly, you may also benefit from an opportunity to trade in larger positions than are normally permitted in the underlying market, without depositing large sums of money.
Tax Free Profits
All spread trading profits are recognised as the winnings of a trade, and are therefore free of Capital Gains and Income Tax.
Tight Spreads
At Saxo Bank Financial Spreads our mission is to provide value for money plus top quality service. You’ll find our spread quotes far better value that most of our competitors. In some cases, you will find that our spreads are extremely competitive in relation to the underlying, live market quotes. For example, our Daily Rolling FTSE spread is just 2 points and our Daily Rolling Sterling/Dollar quote is just 4 points. Compare our spreads to that of our competitors.
Limit your Risk
Spread Trading is a high-risk activity, but at Saxo Bank Financial Spreads we want you to enjoy your spread trading experience. The automated stop-loss facility we provide is an invaluable tool which encourages you to understand and control your risk. Although you must be aware that stop losses are not guaranteed. Your stop-loss is set according to the funds available on your account up to a maximum computer-generated level. You can amend your stop-loss to suit your needs. We also hold an additional 20% of your funds to allow for slippage or a market gap.
Risks
Although you can make substantial profits from spread trading, if the markets move against your trade, your loses can also be substantial and although Saxo Bank Financial Spreads has a policy of attempting to limit client losses on trades by applying an automatic stop–loss to each trade you make, these stops are not guaranteed. As a consequence, if a market gaps, you may lose more than your initial deposit.
Why should spread trading interest me?
Spread trading appeals to a wide variety of individuals who want to take advantage of the versatility and great value that spread trading can offer. Experienced investors use spread trading as an additional trading tool as the spreads we offer rival the prices available in the real market. Alternatively, many investors use spread trading to hedge their existing share portfolio. For example, if you have some shares which are decreasing in value in the short-term, you could “Sell” the value of the share using a sell trade with Saxo Bank Financial Spreads and possibly make a profit to counter-balance the decreasing value of your shares. You do not need to be an experienced investor to spread trade, but you do need to research the products that you wish to trade and be aware of the risks associated with spread trading. Many individuals new to spread trading use technical analysis to guide their investment decision. Saxo Bank Financial Spreads provide charts for every product we quote to assist you with your technical analysis. One of the problems for spread trading companies is the word 'trading' as this gives a false impression to the marketplace. Spread Trading is in fact a highly adaptable trading tool. With a Saxo Bank Financial Spreads account you can trade in many financial products using just one currency - we offer prices on UK, European and US shares, World Indices, Commodities and Foreign Exchange. You can trade on the Cash, the Future or our new Rolling Daily products.
