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Complete Spread Betting Guide for Beginners

7.Types of Spread Bet

One of the major advantages of financial spread betting is the wide variety of bets that spread betting companies offer their clients. There are not only a large number of financial markets to choose from, but also different types of spread bets that you can place.

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All spread bets can be placed either to buy or sell the spread.

Buying the spread, you’re betting on the price of whatever you’re betting on rising above the spread; selling the spread, you’re betting on the price going lower.

Beyond that, different types of spread bets can be separated into:

(1) bets on various time frames and

(2) different types of spread bet orders.

 

Spread Betting across Different Time Frames

Spread bets can be placed that cover different time frames. The primary time frame spread bets are as follows:

 

1. Futures spread bets

Futures spread bets are popular among bettors who like taking long-term positions.

All spread bets are bets on something that will (or will not) happen in the future, but futures spread bets offer bettors the chance to place a spread bet on something that may or may not happen in the relatively distant future – three months or more, to be specific.

Futures spread bets are good until the end of the next quarter (e.g., March, June, September, December). You don’t have to wait for the expiration date to cash in a winning bet. You can close out your bet at any time prior to expiration.

 

For example

You may make a futures spread bet on the price of the FTSE 100 stock index.

If at any time during the quarter your bet is placed in, the index moves to a point that makes your trade profitable, then you’re free to close it out and take your profits. You can likewise exit your bet if it reaches a level of loss where you’re not willing to risk any further loss on it.

 

If you leave your futures bet in place, then the price of the underlying security you’re betting on at the time of expiration determines whether your bet is a winner or a loser and the amount of your profit or loss.

For most financial futures bets, there are typically at least two quarters at a time open for trading. Therefore, you can place a spread bet for either the nearest expiring quarter or a quarter further out in the future.

 

Read:

How Does Spread Betting Work?

Identifying Candlestick Patterns on Any Chart

Spread Betting Examples to Up Your Trading Game

 

2. Daily spread bets

Daily bets are the most common type of spread bet. These are bets made by intraday bettors. They are good only for trading day when they are made. Daily bets – because they cover a much smaller time frame than futures bets – typically offer much tighter spreads.

As with futures bets, you can close your daily bet any time you like prior to the end of the trading day. Otherwise, it will automatically be closed out at the market price at the end of the trading day.

 

 

3. Rolling Dailies

Rolling daily bets differ from daily bets in that they don’t expire at the end of the trading day. Instead, unless closed out, they roll over to the next trading day.

Because they potentially cover a longer time frame – affording you more time for your bet to become profitable – the betting spread will be slightly higher than the spread for a daily bet.

Also, depending on your bet – buying long or selling short – you will either pay or receive a small amount of interest as the bet is rolled over to the next trading day. However, the interest is a very small amount, not enough to significantly affect your profit or loss on the bet.

 

4. Binary Bets

Binary bets differ from regular spread bets in that, rather than the profit or loss being calculated on how many points the market moves for or against your spread entry price, binary bets are an “all or nothing” bet. If your binary bet is a winner, your profit equals the full amount of your bet. If your binary bet loses, then you lose your total bet amount.

Read: What is Bet Per?

 

Types of Spread Bet Orders

Besides placing spread bets on different time frames, you can also use a variety of order types to either enter or exit a spread bet on your spread betting brokers trading platform. The following are the order types commonly offered by most spread betting companies.

 

1. Market Orders

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Market orders are the most commonly used type of order in spread betting. Market orders are executed immediately after they are placed, at the best available spread price.

In rapidly moving, volatile markets, the spread may be changing quickly. Therefore, there is no guarantee of getting a specific spread price, although the spread will usually be either the same as, or close to, the spread quoted just before entering your order.

 

2. Limit Orders

Limit orders specify a certain price and are only filled if they can be executed at the specified price or better.

 

For example

The spread on a stock may be 48-50. A spread bettor can enter a buy limit order to buy the spread on a stock only if the buy price (which is the asking price in the spread – the higher price) is 47 or lower.

If the spread drops to 45-47 or lower, then the order will be filled. If the ask price on the spread never falls as low as 47, then the order will not be filled.

Limit orders are often used to exit an existing spread bet, taking profits. If we look again at the example above, if you had bought the spread on a stock at 48-50, then you might enter a limit order to close out your position at 55.

If the bid price of the spread (the lower price) rises to 55 or higher, then your bet will be closed out at that price or better.

 

3. Stop Orders

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Stop orders are used to manage risk and limit potential losses on an existing spread bet. They are also sometimes used to enter a spread bet.

When used to manage exposure and potential loss on an existing spread bet, stop orders are referred to as stop loss orders.

Let’s say you are only willing to risk losing five points on a spread bet that you buy at a price of 50. You can enter a stop loss order to close out your bet if the spread drops to 45 or lower. If it does, then your stop loss order will automatically be triggered, and your spread bet will be closed out at the best available market price at that time.

As it effectively becomes a market order when triggered, a stop loss order does not guarantee having your order filled exactly at your stop price. In a volatile market, your stop order may be filled at a price substantially worse than your specified stop loss.

 

 

4. Trailing Stops

You can also enter a stop loss order known as a trailing stop. A trailing stop is triggered only when a market backtracks a specific distance from its high or low of the day.

 

For example

You might buy a spread of 50-55 and enter a trailing stop of 15 points. That will put your stop loss at 40 when you first buy the spread at 55. But if the spread then advances to 60, your stop loss will automatically be moved up to 45.

If it advances to 75, your stop loss would automatically be adjusted to 60, 15 points back from that high. Using a trailing stop can help you both minimise risk and lock in a certain amount of profit.

 

Stop orders can also be used to enter a spread bet. You can place a buy stop to trigger buying the spread only if the spread price advances to a certain level, or a sell stop to sell short the spread only if the spread price declines to a certain level.

 

5. Market on Close (MOC) Order

A market on close order is just what it sounds like – a market order that only goes into effect just before the close of the trading day.

You can use a market on close order to either initiate a spread bet or to close out an existing spread bet. Market on close orders are filled at the best available market price, sometime within the last two minutes of the trading day.

 

 

6. One Cancels the Other (OTO)

An OTO order is used when a spread bettor wants to enter either a buy or sell spread bet, but only if the market’s price movement is going in the direction in favour of their bet.

 

For example

Assume that the spread on a financial instrument is 35-37. A bettor can enter an OTO order to buy the spread with a buy stop order at 40 or sell the spread with a sell stop order at 32.

If the spread is advancing, then the bettor’s buy order will be triggered, and their sell order cancelled. Conversely, if the market declines so that the sell order is triggered, then it will be filled, and the buy order will be cancelled.

 

Read: How to Identify and Draw Support and Resistance Levels on Any Chart

 

In summary

Different spread betting brokers offer different types of orders, so be sure to check with your personal spread betting firm to see which spread bet types are available to you.

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