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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
When you spread bet, you always make a fixed amount of profit if you're right about which way a price will move, or a fixed loss if you're wrong...
Explanation
With spread betting, you generally win or lose more depending on the degree to which you're right. If the price moves the way you anticipate, then your profit will continue to grow the further it goes. However, if the market moves against you, your losses will increase as the price movement becomes greater.
On which of the following could you place a spread bet?
Explanation
You can spread bet on all of these and a vast range of other financial assets and products, including interest rates, government bonds and even house prices. You can also use CFDs to trade a similar array of markets.
What is 'the spread' in spread betting?
Explanation
When you spread bet on something, you'll see two numbers - a 'buy' price and a 'sell' price. The difference between these is the spread.
When does a daily funded bet expire and close?
Explanation
A daily funded bet has a nominal expiry date at some distant point in the future - usually many years away - but you're free to close your position at any time before this, whenever the market is open for trading
You open a spread bet 'selling' Retail Group M for £10 per point at a bid/offer spread of 818/820. By the time you later close the bet, the spread is 808/810. What is your profit or loss?
Explanation
As you went short, a fall in the market benefited you. You 'sold' at 818 to open the position and 'bought' at 810 to close it, so the market moved eight points in your favour. This is multiplied by your £10 stake.
Which of these are true for BOTH spread betting and CFD trading?
Explanation
There are many similarities between CFDs and spread betting, which are both derivatives. However, they do operate in slightly different ways and their tax treatment differs.
What are 'lots'?
Explanation
CFDs are traded in standardised contracts, sometimes called lots. The sizes and denominations of these contracts differ depending on the asset, often mimicking how that asset is traded in the underlying markets.
Joe opens a CFD buying two contracts on the German DAX 40 index (contract size €25) and another CFD buying four contracts on the French CAC 40 index (contract size €10). If each of these indices then falls by three points, which position gives Joe the greater loss?
Explanation
Although Joe bought fewer contracts on the DAX than on the CAC, the larger contract size means the overall loss is greater on this CFD. His DAX loss is 2 x €25 x 3 = €150. His CAC loss is 4 x €10 x 3 = €120.
Which of these does NOT apply to CFDs?
Explanation
Both spread betting and CFD trading are exempt from stamp duty. Capital gains tax applies to CFD trading, but not to spread betting. Both types of position can incur overnight funding charges, but you won't normally pay any commission for a spread bet as the charge is included in the spread.
When might you receive a margin call?
Explanation
You can usually open a spread betting or CFD account free of charge. However, you'll need to deposit money to cover the margin requirements if you want to start dealing, and you may need to top this up as the market moves. If the funds on your account drop below the level required to maintain your positions, your provider will ask you to deposit more money or risk having your positions closed.
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