Spread Bet Glossary
Glossary for Spread Betting
1st January 2007
To have a chance of being successful at spread betting, it is important to understand the rules of the game and the terms used.
There
are a number of interesting terms that spread betting players should
familiarize themselves with. Alth
ough the concept of spread betting is rather simple, if players doesn't
know the common terms of spread betting, they run the risk of placing
an unsuccessful bet, or they may not understand completely what is
happening during the betting process.
The following terms are used in spread betting and ancillary financial markets.
An
index bet is a bet placed on a certain company or sport. Points are
awarded to the player based on the company’s or sport’s filling a
certain position or reaching a certain stage.
Betting
on an event, whether it be the stock market or a race, in real time is
called in-running. Betting in this way enables the bettor to see the
prices of the bets being updated.
In the world of financial spread betting, an arbitrage is coined
when the bettor can buy and sell risk free for profit in the same
market. This might happen, for example, if you are betting on two
distinct companies that share opposite positions in the market.
While an open bet is a bet that has not yet been concluded or paid out, a match bet is defined as betting on the performance of two items (such as horses, runners, commodities, shares) in a certain competition or market. In this type of bet, you would concern yourself solely with the performance of those two items, not anything else involved in the game. That competitor’s performance would be measured in terms of supremacy or superiority, meaning how much better he performed over the losing player.
Other terms worth noting:
Binary Betting
Binary betting allows you to take a view on whether an event is going to happen or not, for example whether the FTSE is going to close up on the day or not. There are only two outcomes with a binary bet – as an event either occurs or not. Binary markets are quoted on an index between 0 and 100 – if the event in question occurs then the market settles at 100 or if the event does not occur, the market settles at 0.
Bond
The investor loans money to an entity (company or government) by purchasing bonds. The bond is for a defined period of time at a specified interest rate. If the market price of the bond falls this implies a rise in the interest rate yielded to the purchasing investor, and vice-versa.
Capital Gains Tax
Incurred by the profit from selling an asset that has increased in value. Capital losses on assets liable for capital gains tax can generally be offset against total capital gains for the tax year.
CBOT
Originally a commodities exchange established in 1848. Today it trades both agricultural and financial contracts. As well as the original agricultural contracts such as such as wheat, corn and soyabeans, they now offer options and futures contracts on a wide range of products including gold, silver, U.S. Treasury bonds and energy materials.
CME
The second largest futures exchange and the largest in the United States. Originally setup as the Chicago Egg and Butter Board in 1898. The exchange now focuses on futures on interest rates, currencies, equities and indices. It does still trade a relatively small amount of agricultural products.
CFD
A derivative contract that replicates most of the financial benefits of owning the underlying asset.
Derivative
A security whose value is derived from another asset. This underlying asset does not need to be owned by either buyer or seller and can be a spot instrument or another derivative.
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.
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.
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.
IMM
The currency futures exchange of the Chicago Mercantile Exchange set up in 1972.
Long
To go or be long or enter a long position is to purchase a security in the expectation or hope it will rise in value.
Notional Value
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.
Roll Over
To replace an old expiring position with equivalent contracts of a later expiry.
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.
Spot 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 price that an investor can sell or buy a security at any given time.
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.
SP500
An index of the 500 largest American companies weighted by market- capitalisation. This is generally seen as representing the US stock market.
Stop Loss
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.
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.