A beginners guide to spread betting

Spread bets offer an alternative way to trade the markets compared with CFD trading. In this guide, we show you how to get started with spread betting.

Spread Betting 

What is Spread Betting? 

Spread betting is similar to CFD trading with some key differences. 

It is a tax-free, alternative to traditional trading or CFD trading. 

Spread betting lets traders speculate on the movements of stocks, shares, and other and instruments and assets without owning them. 

That makes Spread Bets derivatives, like CFDs. 

Instead, you are speculating on what’s called on a spread 

A spread is made around an underlying market, for instance, gold. In fact, spread betting originated in gold trading markets. 

With a gold spread, you would be betting on whether the price of gold would rise or fall. 

So, if the price of gold goes up, then you can make a profit. However, if it goes down, you can lose money. 

We will tackle the specifics later. 

Spreads are tied to a huge range of markets. Traders are able to pick from the usual range of markets, and instruments, such as forex, commodities, stocks, and so on. 

Remember: like CFDs, spread bets are leveraged products. Betting is inherently risky, so you should only start spread betting if you have enough capital and are clear of the relevant risks. 

The Spread 

The spread is the difference between the buy and sell prices of the underlying asset’s market price.  

In the context of spread betting, buy and sell prices are also known as the offer and the bid 

Spread bet costs are factored between the buy and sell prices. Usually, you’ll buy a bit higher than the marketplace and sell just below it. 

Let’s use the FTSE 100 as an example. As a market index, its performance is measured in points. 

If the FTSE 100 is trading at 6,000.5, and the spread is one point, the Offer Price (buy price) would be 6,001. The Bid Price (sell price) would be 6,000. 

Bet size 

Bet size is the amount you want to bet on a unit of movement of the underlying market you’re trading on. 

The way profit or loss is calculated on spread betting comes from the difference between the opening price and the closing price of your market multiplied by your bet value. 

Let’s look at an example. 

You open a £5 per-point bet on the FTSE 100. It moves 100 points in your favour. Therefore, your profit would be £500: 

  • £5 bet 
  • 100 point movement 
  • £5 x 100 = £500 = £500 profit 

The reverse is true for losses: 

  • £5 bet 
  • -100 point movement 
  • £5 x 100 = £500 = £500 loss 

Bet Duration 

Bet duration is the length of time that passes before your position closes. 

All spread bets have a fixed time duration. They can vary from just a day to several months, depending on the asset and market conditions. 

Short-term positions may just be daily, for example. These may subject to overnight funding charges, so please be aware of that.  

Why trade via Spread Betting? 

Spread Betting presents many benefits when compared against traditional share trading. 

Tax efficiency 

Spread bets are popular because, in the UK, you do not currently pay any capital gains tax on profits made when spread betting. 

UK traders who spread bet also do not pay any stamp duty on their profits. This is because they do not own the underlying asset they are trading. 

Please be aware that tax treatments are dependent on individual circumstances and can be liable to change. Other jurisdictions will have their own tax laws. 

Variety 

Spread bets can be placed across a wide variety of different markets 

Markets available include: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

2,200 different options are available for you to bet on via the Markets.com platform giving you free rein to spread bet as you like. 

Low capital requirements 

Much like their cousin the CFD, spread bets are leveraged products. You bet using leverage and margin.  

This means you do not have to place down the entire value of the asset you wish to spread bet on, only a percentage. How much will depend on the margin, but it means you can start betting on a budget. 

For example, with 5% margin on a spread bet, you could open a position worth £30,000 for £150:

(5% x (£5 x 6000)) = £150

Even so, it is always best to consider if you have enough capital to spread bet with. Spreads are subject to market volatility. They can go up, but they can also go down. Always be aware of the risks when spread betting. 

Flexibility  

You can take long or short positions on spreads. 

If you think prices on the spread will rise, then you take a long position. 

Likewise, if you think prices on the spread will fall, you will take a short position. 

This means you can trade on markets that are going down as well as up and still potentially make a profit.  

This offers traders quite a lot of flexibility – another reason why spread betting is a popular way to trade. 

Hedge your share portfolio 

If you are already trading shares, and have an existing portfolio, then spread betting can help you offset some risk or limit your losses. 

In this case, you might want to use a spread bet against an asset that is moving in a different direction to your existing shares. 

Let’s say you own shares in Apple. The company has underperformed according to its latest earnings report, so its shares are sliding. You may want to open a short spread betting position on the Nasdaq technology index to offset your losses.  

This would mean that any loss to one position would be offset by profit to the other. 

Risks of Spread Betting 

Like any financial product, spreads hold inherent risks. 

Please read the below carefully and understand the potential risks you will undertake if you decided to start spread betting. 

Spreads are Leveraged Products 

Leveraged products like spreads give you market exposure for a percentage of the full trade you wish to make. This means that you can potentially make profits if the market moves in your favour. 

You can also lose money if the market moves against you and you are not using adequate risk management tools. 

Let’s look at an example. 

If you bet on a spread worth £1,000 with a margin rate of 5%, you would only have to put down a deposit of £50. 

However, if the price of the spread moves against you by 10%, you would lose £100, i.e. double your initial stake in your initial bet. 

This is because your exposure to the market, i.e., your risk is the same as if you had purchased £1,000 worth of physical shares, foreign currency, commodities and so on. 

This means that any move in the market will have a greater effect on your capital than if you had purchased the same value of shares.  

Some account types, however, such as retail client accounts have negative balance protection. That means losses will be limited to the value of the funds in your account. 

Market volatility & gapping 

Markets are inherently volatile. They can go up, but they can also go down. 

Small changes may have a big impact on returns when it comes to spread betting. 

These are similar to the types of external factors that can affect CFD trades, such as government policies, unexpected information and unforeseen changes in market conditions. 

Margin calls may also be applied due to negative effects on the spread’s underlying asset. If they cannot be met, the provider may close your position, or take a loss. 

Gapping may also occur. Gapping happens when prices of instruments suddenly shift from one level to another skipping any intermediate levels

The above may also mean stop-loss orders are applied to your open spread positions. 

Client Money Risk 

There are client money protection laws that apply to spread betting in countries where such trading is legal. 

They are designed to protect investors from potentially harmful practices from irreputable financial product providers. 

Money transferred to spread providers must be kept separate from the provider’s money. This is to prevent providers from hedging their own investment. 

Even so, some laws may not prohibit clients’ money from being pooled into one or more accounts. 

A provider withdraws an initial margin when a contract is agreed upon. The provider also has the right to request further margins from pooled accounts. If clients in the pooled account cannot meet margin calls, the spread provider has the right to draw from the pooled account. This can have a negative impact on returns. 

How to Start Spread Betting 

Here is a quick guide on how to start spread betting. 

Much of the basic principles of CFD trading also apply to spread betting, but there are some differences, which we’ll explain in more detail in this section. 

Margin & Leverage: a reminder 

As with CFD trading, margin and leverage are the two main concepts you need to know before you start spread betting. 

Margin is the money you need to lay down in order to open a leveraged trade, i.e. betting on a spread. 

Both the terms are related. Leverage, based on the leverage ratio, determines the amount of margin you need to have in your account to begin. 

Remember: margin rates vary across different regions and asset classes.  

Leverage lets you gain full exposure to a market without investing the full amount of an underlying asset. You only need a small fraction of the normal capital. 

Margin value is needed to open a transaction. It will be held as collateral until the relevant transaction is terminated. 

The amount of the margin payments is dependent on the leverage ratio of the CFD, the underlying financial instrument and the contract value of the transaction. 

Decide what you want to trade 

Markets.com offers thousands of assets you can place spread bets on, covering sectors such as: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

Don’t forget to use the in-platform streaming service XRay and our Insights service for advice on the leading stocks, indices performance, and current affairs information, to help you decide.  

Build your trading plan 

Think about what you want to achieve from spread betting. Remember to ask yourself the key questions: 

  • How much profit are you hoping to make? Will spread betting help you achieve that? 
  • How much time can you realistically spend trading? 
  • How much can you safely spend? 
  • Are you comfortable assuming the risk?
  • What does acceptable loss look like to you? 

Answering them will give you a clearer picture of how you wish to proceed and what trading strategy you want to undertake. 

Open your first position 

When you’ve decided which market you want to trade, you’re ready to bet on a spread. 

The first thing to decide is whether you want to go long or short.  

  • If you think the spread will rise, you take a Long Position. 
  • If you think the spread will fall, you take a Short Position. 

Once you’ve taken your position, your profit or loss will move in line with the underlying market price. You can use the Markets.com platform to monitor all your open spread bets. 

Putting spread betting into practice 

Let’s look at a spread bet using Google as an example so you can see how the theory comes together in practice. 

In this example, Google is currently trading with a sell price of 11,550 points (£115.50). The buy price is £115.60. 

Because of its recent good earnings, you predict that Google shares are going to rise soon. As such, you decide to take a long position (or buy) Google shares for £10 per point of movement at the buy price, or 11,560 (£115.60). 

If your bet is correct, and Google share prices do rise, you might want to trade when the sell price hits 11,590 (£115.90).  

The market has increased by 30 points (11,560 – 11,590). As such, your bet would have turned a profit of £300 (30 points x £10 = £300). 

However, markets are volatile. They can rise as well as fall. Below’s an example of what would happen if the market moves against you. 

The price of Google shares has fallen to a sell price of 11,510. That would mean you would end up with a loss. 

The market has moved 50 points (11,560 – 11,510). Therefore, you would have made a £500 loss (£50 x 10 = £500).  

Start trading your way with Markets.com 

Now you know your way around spread betting and CFD trading, put your knowledge into practice with Markets.com. 

Remember: spread betting carries significant risk of capital loss. Only take part if you can afford to take any potential losses.

How to trade CFDs: a beginners guide

Trading CFDs is one the most popular methods of stock market trading. Learn how to do it in this beginners guide.

Trading CFDs 

What are CFDs? 

CFD stands for Contracts for Difference. 

A CFD is an agreement between two parties to exchange the difference in the value of a financial market between the time the contract (trade) is opened and the time it is closed. 

You can trade CFDs on markets like shares, foreign currency (Forex), indices, bonds, ETFS, and commodities. 

CFDs are what’s called Derivatives. That means the price you trade comes from the underlying market value.  

For example, if you were to trade US crude oil CFDs on Markets.com, the price would come from the underlying value of the US crude oil futures contract (WTI).  

You don’t own the underlying asset when trading CFDs. You buy or sell contracts by speculating on how you think the market will move. 

By trading CFDs you are taking a Position. A Position is your exposure to the market, i.e., the value of the CFDs you wish to trade.  

Benefits of trading CFDs 

CFDs are a great way to get started in the world of trading. They have lots of benefits that make them a smart choice for first-time traders. 

Efficient use of your capital 

Capital is the money you put down to start trading. With CFDs, you can use that more efficiently. 

You trade using your margin. This gives you leverageWe will go into more detail on these two aspects of CFD trading later. 

For now, it means you only have to put down a fraction of the trade’s full value to open a position. That lets you start trading with a small budget. 

Flexibility 

Because you are trading agreements to exchange differences in the opening and closing points of a position, CFDs offer flexibility in how you can trade. 

CFDs let you trade Long or Short. 

In CFD trading, you trade long is if you believe prices will go up 

If you think prices will rise, you buy your contracts and take a Long Position. 

You trade short if you believe prices will go down.  

If you think prices will drop, you sell your contracts and take a Short Position. 

This means you can trade on markets that are going down as well as up and still potentially make a profit. This offers traders quite a lot of flexibility. 

No Stamp Duty 

In the UK, you do notpay stamp duty on a CFD trade. This is because you do not take ownership of any of the assets you are buying and selling.  

Please be aware that tax treatment of CFD trading will depend on your individual circumstances and be subject to change. 

Variety 

As CFDs can be traded across lots of different markets, you have plenty of scope to choose sectors, companies, and geographies that you think will help you reach your trading goals. 

Markets available include: 

  • Shares – Shares in individual companies like Tesla, Apple, Amazon, Lloyds, Vodafone, Volkswagen etc 
  • Foreign currency (Forex) – US Dollars, Euros, Pounds, and so on 
  • Indices – Stock markets like FTSE 100, S&P 500, Dow Jones, DAX, etc. 
  • Commodities – Assets like oil & gas, crops, and so on 

Markets.com offers 2,200 different instruments for you to choose from on our multi-asset platform. 

Risks of trading CFDs 

There are inherent risks when it comes to trading any financial product like Contracts for Differences. 

Please read the below carefully and understand the potential risks you will undertake if you decide to start trading CFDs. 

CFDs are Leveraged Products 

Leveraged products like CFDs give you market exposure for a percentage of the full trade you wish to make. This means that you can potentially make profits if the market moves in your favour. 

You can also lose money if the market moves against you and you are not using adequate risk management tools. 

Let’s look at an example. 

If you place a CFD trade worth £1,000 with a margin rate of 5%, the margin requirement to open this trade would only be £50. 

However, if the price of the trade moves against you by 10%, you would lose £100, i.e., double your initial stake in your initial CFD trade. 

This is because your exposure to the market, i.e., your risk, is the same as if you had purchased £1,000 worth of physical shares, foreign currency, commodities and so on. 

This means that any move in the market will have a greater effect on your capital than if you had purchased the same value of shares.  

Market volatility & gapping 

Markets are inherently volatile. They can go up, but they can also go down. 

Outside effects like government policies, unexpected information and changes in market conditions mean prices can fluctuate.  

Small changes may have a big impact on returns when it comes to trading CFDs. 

Unfavourable effects on the underlying asset’s value may cause the trade provider to demand further margin payments. These are called Margin Calls 

If a margin call cannot be met, the provider may close your position. Alternatively, you may have to sell at a loss.  

Another risk associated with market volatility is Gapping. 

Gapping happens when prices of instruments, i.e., CFDs being traded, suddenly shift from one level to another skipping any intermediate levels.  

This may mean Stop-loss Orders are applied at an unfavourable price. A stop-loss order is a market risk tool that helps manage risk by closing a position once an instrument or asset reaches a certain price.  

Market volatility’s risk and impact can be lowered by applying boundary or guaranteed stop-loss orders to your trades.  

Client Money Risk 

There are client money protection laws that apply to CFDs in countries where contract trading is legal.  

They are designed to protect investors from potentially harmful practices from irreputable CFD providers. 

Money transferred to CFD providers must be kept separate from the provider’s money. This is to prevent CFD providers hedging their own investment. 

Even so, some laws may not prohibit clients’ money from being pooled into one or more accounts. 

A provider withdraws an initial margin when a contract is agreed upon. The provider also has the right to request further margins from pooled accounts. If clients in the pooled account cannot meet margin calls, the CFD provider has the right to draw from the pooled account. This can have a negative impact on returns. 

How to trade CFDs 

Here is how to get started trading Contracts for Difference. 

Margin & Leverage 

Before you get started, it’s vitally important you understand the concepts of Margin and Leverage. 

Margin is the money you need to lay down in order to open a leveraged trade, i.e., start trading CFDs. 

Margin and leverage are related terms.  

In short, the leverage ratio determines the amount of margin you need to have in your account. 

Margin rates vary across different regions and asset classes.  

Leverage allows you to gain full exposure to a market by investing only a fraction of the capital you would normally require.  

Upon opening a transaction, the margin value will be required and held as collateral to be maintained until termination of the relevant transaction.  

The amount of the margin payments is dependent on the leverage ratio of the CFD, the underlying financial instrument, and the contract value of the transaction. 

Let’s look at an example. 

If you are trading FX with a leverage ratio of 30:1 – equivalent to a margin rate of 3.33% – it means you can control a trade with a notional value of £3000 with only £100 of margin. 

The minimum level required for maintaining positions is 50%.   

In the above scenario, once opening the trade you would need to maintain at least £50 of available funds in your account to satisfy the margin requirements.  

Please note: if margin thresholds are not met, then your positions may be closed. 

Set your budget & fund your account on Markets.com 

Firstly, set yourself a trading budget. 

If you are a beginner trader, you might want to start low.  

£100 is the minimum amount of funds you need to start trading with Markets.com. This is just to open your account. You do not need to trade the £100. If you have the correct margin funds on an instrument or asset, you could trade £50. 

The other available currencies are: USD/EUR/DKK/NOK/SEK/PLN/CZK/AED

Got more experience and confidence? You may want to add more funds – but this is only advised if you have previously traded CFDs before. 

If you want to try your hand at trading without risking your money, then open a Demo account. No money will change hands and you can explore the Markets.com platform without any of the risk. 

Build your trading plan 

Think about what you want to achieve from trading. 

  • How much profit are you hoping to make?  
  • How much time can you realistically spend trading? 
  • How much can you safely spend? 
  • Are you comfortable assuming the risk? 
  • What does acceptable loss look like to you? 

If you can answer these questions, it will help you make more informed trading decisions that suit your individual goals. 

Research your opportunities 

With over 2,200 assets to choose from, you will find opportunities to suit you at Markets.com. 

In the platform, you can search across CFDs on various sectors, such as: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

You can also use Markets.com unique XRay and Insights analysis to help you decide. 

XRay is our streaming service, featuring videos and content from market experts. It covers everything from leading stocks to currency movements, to current affairs information. 

Insights is much the same: market news delivered by professionals. 

These tools will aid you in choosing the correct CFDs for you. 

Open your first position 

When you have decided which market you want to trade, you are ready to start trading. 

The first thing to decide is whether you want to go long or short.  

In CFD trading, you trade Long is if you believe prices will go up.  

  • If you think prices will rise, you buy your contracts and take a Long Position. 

You trade Short if you believe prices will go down.  

  • If you think prices will drop, you sell your contracts and take a Short Position. 

Once you’ve taken your position, your profit or loss will move in line with the underlying market price.  

You’ll be able to monitor this on our platform using the various performance and analytical charts available. 

You can also do this manually by placing the same trade you originally placed but in the opposite direction. 

For example, if you opened your position by buying, you could close by selling the same number of contracts at the sell price – and vice versa. 

Your profit or loss is calculated by multiplying the amount the market moved by the size of your trade. 

Buy & Sell Prices 

Buy and Sell Prices are very important. 

When trading CFDs, you will be offered two prices based on the instrument you are trading’s underlying value. 

  • The Buy Price is what you bid to purchase an instrument 
  • The Sell Price is the seller’s offer 

Buy prices will always be higher than the instrument’s current underlying value. The price to sell will always be lower. 

The difference between the two prices is called the Spread 

Number of contracts 

A key aspect of CFD trading is selecting how many contracts you wish to trade.  

Each market has its own minimum number of contracts. 

For example, the FTSE 100 has a minimum contracts number of one. 

There is no maximum contracts number. The level you can buy will depend on how much capital you originally put down, your budget, and so on. 

Stops & limits 

Stops and Limits are put in place to minimize trading risk. 

Remember: CFDs are leveraged products. You only ever need to put down a small deposit to gain exposure to the full value of the trade.  

This means your capital goes further but also means that you could lose more than your initial outlay. 

To help restrict your potential losses, you might choose to add a stop. Stops automatically close your position when the market moves against you by a specified amount. 

Limits are the opposite to Stops.  

They close your position when the market moves a specified distance in your favour. Limits are a great way to secure profits in volatile markets. 

An example CFD trade 

Let’s put all the above into practice. 

You want to trade shares in Apple as CFDs. 

The Apple shares have an underlying market price of 314.6p. The sell price is 314.5p and the buy price is 314.7p. 

Apple is expected to make an earnings announcement soon. Market forecasts suggest Apple’s earnings release will be positive and the company is performing well.  

Because you think the price will go up, you buy 2,000 Apple share CFDs at the buy price of 314.7. This is equivalent to buying 2,000 Apple shares. 

As CFDs are leveraged products, you do not need to put up the full value of the shares you wish to trade. You only need to cover the margin. This is calculated by multiplying your exposure with the margin factor for the market you are trading. 

In this example, the margin factor is 20%. Your margin would be 20% of the total exposure of your trade: 

  • The total exposure is £6,294 (2,000 CFDs x 314.7p). 
  • 20% of £6,294 = £1258.80. 

If the CFD value rises 

Your prediction was correct! Apple’s earnings announcement shows the tech giant has had a very good quarter. Sales are up, and its share price has risen.  

You decide to close your position when it reaches 354.3p, with a buy price of 354.4p and a sell price of 354.2p. 

You reverse your trade to close a position, so you sell your 2000 CFDs at a price of 354.2p. 

Now you can calculate your profit. 

To do that, you multiply the difference between the closing price and the opening price of your position by its size: 

  • 354.2 – 314.7 = 39.5  
  • 39.5 x 2,000 (the number of your CFDs) = 790 
  • Your profit = £790 

Remember: You will also need to pay a commission fee, capital gains tax, and any potential overnight fees that have affected your trade. 

If the share price goes down 

Bad news. Apple’s earnings are worse than the market anticipated. Its share price has fallen, and you decide to cut your losses and sell your CFDs. 

The sell price is 288.7. That means your position has moved 26p against you.  

The process for calculating your loss is the same as profit: 

  • 288.7 – 314.7 = -26. 
  • -26 x 2,000 = 520
  • Your loss = £520 

Those are the basics of what CFDs are and how to trade them. 

What are IPOs and how can you trade them?

When a company decides to go public, it may do so by making an Initial Public Offering, or IPO. Here, we take a look at what that means – and how you can start trading on a company going live for the first time.

IPOs

What are IPOs?

Companies often do not start as publicly traded companies. They do not issue stock or may only issue shares to private shareholders.

However, many companies decide to go public. This means their stock will be listed on stock exchanges and be available for public trading. In theory, anyone could be a shareholder by purchasing shares in said company.

These tend to be some of the most exciting events for stock traders and investors. For instance, when Coinbase announced it was going public in February 2021, it created a wave of market interest.

There are a couple of different ways a busines can go public. One of the most popular is by making its Initial Public Offering.

There are a couple of reasons why a company may choose an IPO, including:

  • Raise capital
  • Pay off debts
  • Monetise assets
  • Improve its public profile

Once it goes live, the business’ stock will be available for retail traders and investors to buy and trade.

These tend to be medium-to-large cap companies. For example, when money sending service Wise was worth an estimated $5-9bn ahead of its IPO.

Smaller companies may use other methods to get access to public capital. The London Stock Exchange Alternative Investment Market (AIM), for example, is where small companies that have exhausted their private money, but are not at the level required of an IPO, can still be publicly listed.

How does the IPO process work?

The first part of an IPO is the audit. This is basically a review of all the company’s financial ins and outs.

The company will then have to file a registration statement with the relevant authorities. So, if a business were to launch on the London Stock Exchange, then it need to share its registration statement with the Financial Conduct Authority (FCA).

The stock exchange the company wants to list on will then review the business’ application. If successful, the company will move on and work with an underwriter to determine how many shares it should release to the public. If unsuccessful, it will have to go back, review its application, and try again.

The filing will also be read by traders and investors to get a flavour of a) the company’s financial health b) its IPO plans and c) what to possibly expect when it finally launches.

Generally, a business will work with an investment bank to determine its IPO share price, i.e., the price per share when the stock first goes public. Goldman Sachs was hired to price trading app Robinhood’s IPO, for example.

There is no set timeframe for an IPO. They require many different stakeholders and complex processes to reach fruition.

Trading or investing in an IPO

There are a couple of ways to trade and invest in a stock that’s gone public – even before the process is completed.

Grey markets

At Markets.com, we offer grey markets.

A grey market let’s use offer Contracts for Difference (CFDs) on a stock before it goes live. You can speculate on its price movements and estimated market cap up to the end of the stock’s first trading day.

A grey market CFD’s price will be determined by our pricing team, based on the company’s prior financial performance, its initial public offering filing, and predictions on how we think the stock will perform.

Trading is about speculating on price movements. CFDs allow you to do this without owning the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher. Only commit capital if you can afford to take any potential losses.

Please note: a grey market will not be offered as an investment product. Investing is the act of buying shares to hold onto in the hope they gain value. Because the stock hasn’t actually launched yet, you would be unable to buy and hold a grey market CFD.

When the IPO launches

One the IPO goes public, you will be able to buy the stock to add to your investment portfolio. Alternatively, you will now be able to trade on its price movements using spread betting or CFDs in the manner mentioned above. To reiterate, you will not own the asset if you pursue a spread or CFD-trading strategy.

How do IPOs perform after launch?

That depends on a myriad of factors. Sometimes stocks come roaring out the traps. Other times, as was seen with Robinhood with its IPO launch, a company going public can be a bit of a damp squib and fall below market expectations.

The stock’s performance should also be gauged over different timelines.

We’ve split the table below into different stock categories to see how company shares tend to perform in their first day, first week, and first month after their first public offering.

The data represents a global overview for stocks in 2020, rather than IPOs stocks listed on a specific exchange. It also includes a comparison of IPO stocks against main market and AIM stocks.

Stock type Price movement- first day Price movement – first week Price movement – first month
All IPOs 6.6% 9.0% 1.5%
Main market 4.6% 4.4% 0.7%
AIM stocks 9.0% 14.6% 12.4%

 

Where can you find out about upcoming initial public offerings?

Generally, each stock market will have a dedicated calendar or page detailing upcoming debut stock listings. Here are some examples

London Stock Exchange

Nasdaq

New York Stock Exchange

We also inform our clients on upcoming IPOs. You can find more information in our news section.

A word on debut listings and risk

Please note that trading and investing carries with it the risk of capital loss. The value of your investments may go down. If you trade leveraged products like CFDs then you may encounter serious losses.

Do your research prior to committing any capital. Only invest or trade if you can afford to take any potential losses.

What is Forex trading and how can you start?

If you’re a newcomer to the world of forex trading, it might seem a bit intimidating. In this beginner’s guide, we run through the basics so you can start your FX trading journey.

Forex trading?

What is forex?

Forex, also shortened to FX, stands for foreign exchange. In practice, it’s the exchanging and trading of different currencies.

FX is the most popular trading activity in the world. Every day, $6 trillion – more than the GDP of the UK and France put together – exchanges hands.

A number of different types of traders are involved in the FX trader, including banks, companies, individual retail investors, and even governments.

There is no centralised exchange when it comes to Forex. It’s typically done over-the-counter. Essentially, anyone can get involved – but please only commit any capital if you are comfortable taking any losses.

In our case at Markets.com, we offer FX trading via contracts for difference (CFDs). With CFDs, you do not own the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher.

What makes FX trading appealing?

There are lots of reasons why foreign exchange is so popular, such as:

  • Market size – roughly $6 trillion changes hands every day!
  • Variety – We offer over 60 different currency pairs to trade at Markets.com
  • Accessibility – Unlike stocks and other assets tied to exchanges, currency can be traded 24/7
  • Leverage – As mentioned above, currency pairing CFDs allow you to open a trade at a fraction of the trade’s total value

There is also a degree of flexibility with forex.

CFDs allow speculation on price movements in both directions. If you think the currency pairing is going to lose value, you will take a short position. If you think it will gain value, you’ll take a long position.

What are currency pairs?

Currency pairs are the financial instrument used in foreign exchange.

It is a quotation for two different currencies. It’s basically the amount you would pay in one currency for another.

Let’s look at an example.

The currency pair is GBP/USD at 1.15.

That means you could exchange 1 GBP for 1.15 USD.

If one of the paired currency’s value changes, then the currency pair’s value will change too.

For example, GBP/USD has started the day at 1.15. By the end of the day, it has risen to 1.16. That is because the strength of pound sterling has risen in value against the US dollar.

If the currency pair starts the day at 1.15, then drops to 1.13, for instance, that means the value of pound sterling has weakened against the US dollar.

At Markets.com, our currency trading offer is split into three categories: Majors, minors, and exotic.

Majors are some of the most popularly traded pairs on the market, coming from the largest global economies. They’re essentially the engines of global commerce and economics. Major currency pairs include:

  • GBP/USD – Pound sterling to US dollar
  • EUR/USD – Euro to US dollar
  • JPY/USD – Japanese yen to US dollar
  • USD/CHF – US dollar to Swiss franc
  • AUD/USD – Australian dollar to US dollar
  • NZD/USD – New Zealand dollar to US dollar
  • CAD/USD – Canadian dollar to US dollar

The minor pairings are still from important economies but do not include the US dollar. These are still popular trading assets. Take a look at some examples below:

  • AUD/CAD – Australian dollar to Canadian dollar
  • CAD/JPY – Canadian dollar to Japanese yen
  • EUR/GBP – Euro to pound sterling
  • USD/DKK – US dollar to Danish kroner

Exotic pairings are pairings featuring potentially more volatile currencies. In the past, such currencies may also have had unique or difficult conversion requirements. Many come from emerging economies.

  • CHF/PLN – Swiss franc to Polish zloty
  • EUR/RUB – Euro to Russian rouble
  • GBP/TYR – Pound sterling to Turkish lira
  • USD/ZAR – US dollar to South African rand

What factors affect the currency market?

Like any financial instrument, currency pairs are affected by numerous external factors. If you’re looking to enter the world of forex trading, be aware of the following:

  • Central bank policy & interest rates – It’s the job of central banks to essentially watch over all aspects of a nation’s monetary policy. That will give it oversight over many things that can affect currency prices. Interest rates are a key part of this. If a central bank increases its overnight rate, then currency traders looking to enjoy higher yields may end up buying more. This can make currency prices rise.
  • Economic releases – Big economic releases, such as monthly, quarterly, and annual GDP growth figures, manufacturing and services PMIs, employment figures, and inflation all have an influence on FX prices.
  • Politics – It goes without saying that political tussles can affect a currency pairing’s valuation. Think how the pound slid dramatically after the Brexit vote, or how the USD wobbled in the wake of the US/China trade war under the Trump administration.
  • Volatility – The above factors will have an impact on price volatility, which can then affect how traders trade. Some may prefer to trade on volatile currency pairs; others may wish to hold off until markets fall back to normal. Be aware that some currency pairings are more volatile than others.

Some currency trading tips for beginners

  • Research – Don’t commit any of your money until you’ve done your research. Study the markets. Take time to head over to our news and analysis section. You’ll find plenty of pieces on what’s moving markets and how major currency pairs are currently fairing. The old adage fail to prepare; prepare to fail runs true here. Make sure you’re informed before placing a trade.
  • Practice – A com demo account lets you practice trades with $10,000 in demo credit to play about with. That way you can get a feel for currency markets, familiarise yourself with our platform, and see how tools can help impact your trades, in a risk-free environment. You won’t be spending any money.
  • Tools – We have a suite of powerful trading tools designed to help you. From various different charts to sentiment indicators, and much more besides, these are all designed to give you a potential trading edge. Click here to learn more about our tools.
  • Know your limits – Only trade if you are comfortable taking losses. Don’t be afraid to cut your losses either if you feel you are losing too much. Do not overextend. At the same time, don’t be tempted to take all of your potential profit out the first time it appears. You can be confident – but only you will know your own limits.

Remember: trading is inherently risky. The value of your trades can down as well as going up. Bear this in mind if you decide to take the forex trading plunge.

A guide to short selling

Short selling offers traders and investors another way to potentially make profit – but it’s not for the faint hearted. Despite this, like all trading strategies, you could stand to make some big gains by short trading stocks.  

A look at short selling 

What is short selling? 

There are a couple of different methods of short selling, each basically being the same concept but with a distinct difference.  

At its core, shorting a stock is basically betting it will drop in price. 

Traditional shorting involves borrowing a stock from a broker and selling it straight away at current market price. You would then wait for the price to decline, then buy the stock back at the new lower market price and return it to the broker.  

Any profit made comes from the difference in the initial sell price and the final buy price. If the market falls, you profit from the decline. If it doesn’t, you have to buy the asset back at a higher price and take a loss. 

This is a complicated process, and not for inexperienced investors. It can also be difficult to find a broker willing to work with you on such a strategy. It’s also very risky as, theoretically, there is no limit to how low a stock could fall.  

As such, many prefer to short derivatives, like a stock CFD, for short selling. In this case, shorting is the act of trading on the price movements of an asset you don’t own via the derivativein the hope it will lose value, then closing that trade for a profit.  

Short selling a derivative 

In this scenario, Stock A is trading at $150 per share. You think the stock will fall in price, so you open a short position on the stock using CFDs. You have decided to short sell 100 Stock A CFDs. The price has fallen to $145 per share. If you close your position now, you stand to make $500 worth of profit: 

  • ($150  $145x 100 = $500. 

The opposite is true for calculating losses. So, if you have taken a short position, but the share price moves upwards by $5, you would then lose $500. 

If you were to short via spread betting, you are placing a bet on which direction the market price will move in. In this case, you think it will fall. Here, you select an amount of currency per point of movement.  

So, if you were to go short on a stock at $5 per point, you will gain $5 for every point it moves down. For instance, you think A will fall 20 points at $5 per point. If this happens, you would generate $100 in profit: 

  • 20 x $5 = $100 

Traditional short selling 

Stock A is currently trading at $75, but you believe it will fall, so you decided to short it. Your broker lets you borrow 100 shares of Stock A from your broker and sell them at the current market price.  

Stock A prices fall considerably over the coming week. They have reached $40. You close your position and buy 100 shares of Stock A from your broker.  

To calculate your profit, you would first look at the price of the shares you first borrowed: 

  • 75 x 100 = $7,500. 

Then, you would look at the price you re-bought the shares for: 

  • 40 x 100 = $4,000 

Your profit comes from the difference in the two figures: 

  • $7,500 – $4,000 = $3,500 = $3,500 profit 

Had you been wrong, and the stock increases in value, your risk could have essentially been infiniteBecause you only borrowed the stock, the broker is able to ask them back at any time. You would then have to close your position at a price and potentially suffer a major loss. 

Shorting & hedging 

Many traders go short in order to hedge a position. This is basically holding two positions at the same time in order to offset losses from one position against gains from the other. Traders may take a short position to limit losses incurred from a long position, for example. 

If there is a risk that the stock may decline on the long position, you might use a derivative like a CFD to offset that risk. It might not mean you avoid a loss altogether, but it could limit the impact. 

But there is still lots of risk associated with shorting to hedge. Asset prices can move in ways you do not expect. If a stock goes up, your potential losses may be unlimited. Another risk to watch for is short squeezing. A short squeeze happens when short sellers try to cover all their positions but end up causing the stock price to rise and making losses potentially much higher. 

That’s why, whatever trading strategy you use, it’s very important to know all the risks and try and mitigate them as best you can. 

Pros and cons of short trading 

Pros 

  • Offer the chance to make a profit on a declining market or asset 
  • Derivatives like CFDs mean you can go short without owning the underlying asset 

Cons 

  • Short selling is inherently risky and can result in major losses 
  • It can be difficult to get a broker to lend you stocks in order to attempt short trading 

Trading & buying US shares in the UK

The US stock market is where mega-caps like Apple, Google, and Amazon call home. Interested in buying or trading US shares in the UK? Here’s a quick and easy guide on how to do just that. 

How to buy or trade US shares 

Buying US shares in the UK 

If you want to buy and invest in US stocks, then you’ll want to head over to our Share Dealing* site to open your account. This will give you access to thousands of American stocks, from large caps to smaller firmswith plenty of options to choose from that suit your investment goals. 

Please ensure you do your due diligence before committing to any investment. Be sure to read our insights to give you an idea about which stocks are performing well, market conditions that can affect share prices, and general background that could help inform your investments. 

Charges & W-8BEN forms 

US stocks have extra small charges on our Share Dealing platform. These are minimal, but they’re important to know about 

Its standard practice for US depositary receipts to charge an annual administration fee up to USD 0.05 per share depending on the issuing depositary bank, to cover banks’ processing costs.  

US shares can also only be bought using US dollars, so you may be charged a small conversion fee on stock purchase too. 

Also, you will need to fill out a W-8BEN form. No one can buy US stocks in the UK without one. They’re required by the US Inland Revenue Service to confirm that you’re not a resident of the United States for tax purposes. Upon completion, we’ll be able to process an individual tax benefit for you. You can then enjoy reduction of up to 30% in the amount of US tax you’re charged on dividends from the US shares you buy. 

You can find a breakdown of the charges pertaining to US shares and download a W-8BEN form from this page 

Trading US shares in the UK 

To trade on US shares, you don’t have to own them. Our Marketsx platform lets you trade derivatives like US stock CFDs and place spread bets too on a wide range of large caps and other American firms.  

With this approach to trading, you don’t have to own the underlying asset you’re speculating on, in this case stocks. Instead, you trade on the asset’s price movements. You can go long if you think the price will rise or take a short position if you think the price will fall. 

Remember the risks 

Investing or trading leveraged products like CFDs is risky, as is buying and selling shares. If you wish to invest or buy US stocks, please bear that in mind. Make sure you do your research before you commit to any specific stocks and only invest if you can afford any losses. 

*only available in certain jurisdictions.  

What are ETFs and how to invest in them

New to trading? You might be asking yourself “what are ETFs”? Here, we take a look at these financial products to give you some idea of how they work, and how they might fit into an investment or trading strategy. 

What are ETFS? 

Breaking down ETFs 

ETF stands for Exchange Traded Fund. They are a form of investment that combine the features of funds and equities. 

ETFs are like other types of fund in that they are made up of a group of assets. These might be shares from a certain sector, commodities, bonds, or a mixture of different asset classes. The assets inside an exchange traded fund help track the performance of the fund’s underlying market as closely as possible. 

Unlike other funds, exchange traded funds are listed on exchanges as their name suggests. 

Some ETFs contain thousands of stocks; others not so much. But, by investing in an ETF, you can gain exposure to an entire sector with a single trade, instead of investing in individual stocks. For example, the ARK ETF is gathering together companies related to space travel and exploration.  

Oil ETFs, for example, will likely contain oil producers, but they can also include companies involved in other aspects of oil, such as oilfield service providers, equipment manufacturers, transportation firms and so on. Of course, oil ETFs may also include different types of oil assets, like WTI or Brent crude oil futures, together in a single fund. 

Benefits of exchange traded funds 

Investors use ETFs for numerous reasons as they do offer some key investment benefits. 

  • Transparency  The assets inside an exchange traded fund are available to see, so you’re not closed off from what you’re investing in. All of them are publicly traded assets available on exchanges. You know what you’re getting in an ETF. Their prices are displayed too via exchanges, making them very accessible. 
  • Diversity – Successful investors diversify their portfolios to protect against risk. ETF shares allow them to hedge against negative movements in single sectors or markets, as this type of instrument offers access to multiple markets in a single trade. 
  • Variety – The variety of options available for ETF options is nearly as diverse as the number of individual stocks available on exchanges – ideal for diversification. 

Types of ETF 

Here is a list of the most commonly occurring exchange traded funds available for investors 

  • Commodity ETFs – These group together different commodities, with popular funds including oil ETFs, gold, and other metals. 
  • Currency ETFs – Used by forex investors to invest in a variety of currencies such as USD, EUR, or GBP. 
  • Industry ETFs – Like the aforementioned ARK Space ETF, these group together stocks in a specific industry such as tech, banking, or oil & gas. They may take a wider view of their industry, representing companies working across all sectors, like tech manufacturers, component suppliers, technology retailers, and so on. 
  • Bond ETFs – These include government bonds, corporate bonds, and US municipal bonds, covering state and local bonds. 
  • Inverse ETFs  An inverse exchange traded fund attempts to earn gains from stock declines by shorting stocks (selling stocks, expecting a decline in price, and purchasing the stock again at a lower price). 

How to invest in ETFs 

Currently, there are over 70 different exchange traded funds to choose from on our Marketstrading platform. We’ve laid how some key steps below on how to invest in ETFs.  

  • Choose your area of interest – What are you looking to invest in? Have any markets caught your eye? Maybe you want to capitalise on the recent cryptocurrency boom, or invest in renewable energy? Set out which sectors you wish to invest in. 
  • Trading or investing – Are looking to trade or invest in ETFs? There is a key difference here. Investing is where you would buy into the fund, assigning what level of capital you want to invest in each of the fund’s assets. Trading would mean you do not own any of the underlying assets in the fund. Instead, you would be trading on underlying price movements, like you would a stock CFD. Trading is done via Marketsx platform. 
  • Set your budget – Trading and investing contains inherent risks. While there is substantial potential to make profits, you could also make substantial losses too. Only set an investment budget you are comfortable with. Never commit any capital you cannot afford to lose. You can also add stops and limits to your Marketsor Share Dealing account. 
  • Open & monitor your positions – Once you’ve decided, you’re ready to open your positions. Be sure to monitor your ETFs for price movements and so on, to mitigate your risk and avoid any losses. 

Remember: trading and investing in ETFs, like any financial product, is risky. You can lose money. Please be ensure you know of all the risks and mitigate them accordingly when investing or trading in exchange traded funds. 

How to trade oil

Crude oil trading is a popular activity for commodity traders. Here’s how you can get started with oil trading. 

How to trade oil for beginners 

Examining the oil market 

When we say trading oil, we do not mean physically exchanging cash for a barrel of liquid crude. Instead, we’re looking at the different financial instruments that are used by commodity traders to buy and sell oil. 

The two most commonly traded oil varieties are WTI (West Texas Intermediate) and Brent Crude. These are called benchmarks because their prices are used as point of reference for traders of other blends, i.e. different types of oil. The other oil benchmark is Dubai Crude. 

Crude oil share prices are a representation of the current value of a barrel of oil. Different blends have different prices. WTI has a different price to Brent, for example. At the time of writing, WTI futures were trading at around $52.90, whereas Brent futures were trading around the $55.70 level. The difference between the two is called thBrent WTI Spread. 

Prices are affected by many different factors: economic health of countries worldwide; health of manufacturing sectors; global oil demand; outside factors like the Covid-19 pandemic, and so on. 

Oil futures vs options 

Oil futures are contracts in which an exchange for a set amount of oil to be sold at a set price on a set date is agreed upon.  

Demand for oil ebbs and flows, so prices reflect that. As the price per barrel of oil goes up or down, so do the price of crude oil futures. Exporters and importers use futures to insure against any potential adverse effects of oil price volatility. Traders, on the other hand, use futures to speculate on the movement of oil prices without owning, buying or selling oil commodities.  

This means they do not have to worry about logistical aspects like transport and storage, nor do they have to sit and wait for the price to increase while their barrel sits in a storage facility. Instead, traders can use futures contracts to take advantage of the same price increase without thinking about the physical logistics of oil. 

Options are similar to futures, but with an important distinction. Options give you the right to buy a set amount of oil at a set date for a set price. Unlike futures, however, there is no obligation to buy with options. You can walk away from the trade if you want to.  

Where can you trade oil? 

The oil benchmarks are listed on exchanges around the world, including the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX). These are tradeable alongside other hydrocarbon products like natural gas, heating oil, and various types of oil-derived fuels. You can trade the derivatives of these oil futures with a CFD trading account at Markets.com. 

Oil spot prices 

Crude oil share prices can also be expressed as spot prices. Spot prices represent the cost of buying or selling oil and taking immediate delivery, i.e. on the spot.  

A spot price is different to a futures price. Futures show how much the markets think oil will be worth when that future contract expires. Spot prices show much it is worth right now. 

Spots and futures haven effect on each other through two important concepts: contango and backwardation. 

  • Contango – If the spot price is lower than the futures price, then the market is in contango. This is because futures are trading on a premium from the spot price. Physically delivered futures contracts might reach this market state due to factors like storage, financing, and insurance costs impacting oil prices. Futures prices can also change as market participants change their views of the future expected spot price. 
  • Backwardation – If the spot price is higher than the futures price, then the market is in backwardation. Markets may enter this state if there are currently more advantages to owning the physical product, I.e., keeping oil production high. This is called the convenience yield. It’s an implied return on warehouse inventories (I.e., barrels stored in a warehouse). The convenience yield is inversely related to inventory levels. When warehouse stocks are high, the convenience yield is low and when stocks are low, the yield is high. 

Methods of crude oil trading 

  • Buying futures and options – To trade these, you will likely need access to the right exchange. The top oil exchanges have restrictions in place as to who can actually buy futures and options, so a lot of the time speculation is undertaken via brokers. 
  • Trading CFDs – Contracts for difference allow you to speculate on the movement of futures and options without owning those assets or any physical oil. You don’t need to be a professional to start trading oil. Instead, simply create an account on our Marketsx platform and you can begin trading CFDs on futures, as well as spots. You could also consider speculating on an oil ETF too. 
  • Investing – A third option is to invest in oil company shares, either through individual company’s stocks, or through a collection in an ETF. Oil company stock prices are influenced heavily by the crude oil share price, but they can still sometimes offer good value against trading the commodity itself. If you’d like to invest with us, you will need to open a Share Dealing account to use our MarketsI platform. 

A word of warning: trading oil, like trading all commodities, contains risk of capital loss. Only trade if you can afford any potential losses.  

How to Buy, Sell & Trade Stocks

Buying, selling and trading stocks is one of the most popular way to trade in the world. If you’re a novice, however, it can be quite intimidating. Here’s a quick guide on what you should know before you take your first share trading steps. 

Buying, selling & trading stocks 

How stocks work 

Stocks, also called equities or shares, are small fractions of a publicly-traded company that can be bought or sold on stock exchanges.  

Stock exchanges are found all around the world, with the New York Stock Exchange (NYSE) probably being the most famous. Business is done in person here. Brokers place orders on behalf of their clients which are passed onto floor traders who then find other traders looking for the other half of the deal, i.e., a trader selling apple shares would need to find a trader looking to buy them. 

Other exchanges are done electronically. The NASDAQ, for example, is a computer-based stock exchange where trades are all done digitally. 

Over the counter trades, OTCs, are made directly between parties without an exchange acting as the middleman between traders. If you were to buy and sell stock CFDs on our Marketx trading platform, for instance, that would be an OTC trade. On the other hand, if you were to buy and sell stocks on our Marketsi Share Dealing platform you would be transacting directly via the exchange. 

Trading platforms like Marketsx or our Share Dealing platform have become exceptionally popular ways to buy, sell and trade stocks. They’re generally accessible anywhere via online portals and offer a wealth of shares to choose from.  

What affects share prices? 

Trading stocks is all tied in with a company or asset’s share price. You’re probably familiar with the old investor mantrabuy low and sell high. While it might seem a little cliché, that’s the principle that drives investing. It means buying when share prices are low and selling them when share prices are high. 

When a company is first listed on a stock exchange, it makes its initial public offering (IPO). The IPO price is the value of a single share at the time of the company’s first listing. After this, stock prices will begin to fluctuate. 

Its important to note that company stock is always limited. There is always a finite number of shares available. A company can issue more shares, or buy back shares from investors, but the number of actual shares in circulation is always known.  

Share prices are affected by various different factors. 

When there are more buyers than sellers on the market, then there is a good chance there is high demand for that particular stock, and its price will rise. The opposite is true. If there are more sellers, then this indicates a decline in demand, so the price will fall. 

Fluctuations in share prices are caused by: 

  • Earnings reports – Companies generally release their financial performance reports once every quarter and produce a full report by the end of their financial yearTraders and investors use the information in these reports, which include revenue, profit and earnings per share (EPS) as part of their fundamental analysis. These releases will affect share price movements. 
  • Macroeconomic data – The overall health of the economy companies operate in will affect growth. Data releases such as gross domestic product (GDP) and retail sales can have a significant influence on company share prices. Strong data can cause them to rise. Weak data can cause them to fall. 
  • Interest rates – Individuals potentially won’t need to take big risks to get healthy returns if interest rates are high. They may save instead. This can cause the stock market to see less investment. If signals from a central bank make it likely that it will raise interest rates, demand for shares may fall. 
  • Market sentiment – Share price movements aren’t always based on fundamental analysis. The view that the public, as well as market participants, have on a particular stock can also cause demand to fluctuate. This is how speculative bubbles are formed. 

The difference between buying & trading stocks 

Before you begin, it’s important to learn the difference between investing and share trading. The key differences are: 

  • The timeframe positions are held for 
  • How profit is made 

Investing 

Investors buy shares outright. They hope that they will increase in price so they can be sold for a profit at a later date. That means they tend to hold onto shares for a long period of time, so they can attempt to profit from any changes in share price and through any dividend payments they may be accorded as share owners. 

Our Share Dealing and Investment Strategy Builder platforms have been developed with investors in mind.  

Trading 

Trading stocks uses derivative products like stock contracts for difference (CFDs) or spread bets. This means they take their value from the underlying market the asset is drawn from. Traders in this case do not own the shares. However, they can make a profit on the share price movement from rising or falling shares. As such, these trades take short to medium-term positions, instead of long ones. 

Risks of share trading 

Both investing and trading are inherently risky, but the risks associated with each activity differ. 

When investing in stocks, your risk is limited to your initial outlay, i.e. the amount you paid for the stocks. For example, if you spent £1,000 buying shares, all you could ever lose would be £1,000, even accounting for share price movements.  

Trading, however, is done with leveraged products (CFDs, spread bets). Leveraged products allow traders to open positions by placing down a percentage of the asset they wish to trade’s initial value. That can help maximise profits – but it can also mean you make significant losses if your trade moves against you.  

Negative balance protection is offered by Markets.com at no extra cost, so if your balance does move into the negative, it will be bought back up to zero. However, be warned, you can lose money if trades move in the opposite direction when using leveraged products.

A Complete Guide to Day Trading for Beginners

Day trading is one of the most popular ways to trade in the UK. If you’re unsure what it is, or how to get started, here’s what you need to know. 

Day trading for beginners 

What is day trading? 

Day trading is the act of buying and selling financial instruments in a single day. You close your open positions at the end of the day and start again the next. Day traders buy and sell lots of different assets within the same day, sometimes multiple times a day, so they can capitalise on small market movements.  

Be warned: this type of trading activity is not suited for part timers. It requires a lot of time, attention and dedication to be successful at. Day traders make a lot of quick decisions, executing many daily trades for comparatively small profit. This is basically the opposite of conventional investment strategies which are based on price movements over longer periods of time. 

Getting started with day trading 

A good approach to day trading for beginners is: 

  • Research markets you can day trade 
  • Establish a trading strategy 

Here’s how do to just that. 

Markets for day trading 

Markets most associated with day trading are those with fixed closes, i.e. are only open for regular trading hours. While this may be the case, you can still trade across markets that are open for 24 hours. 

Ultimately, the best markets for day trading will be down to your personal preferences. Think about what you’re interested in, what you can budget for, and how much time you want to spend trading. 

Popular day traded markets include: 

  • Forex 
  • Shares 
  • Indices 

Forex 

Forex day trading revolves around trading currency pairs and is a popular choice for novices. There are lots of different currency pairings out there like GBP/USD or EUR/USD, and high market liquidity makes it easy for currencies to be bought and sold. Traders often use forex day trades to avoid fees associated with rolling over positions, and lower risk of being exposed to overnight market movements. 

Shares 

Shares offer even more variety than forex. Their ready availability makes them very attractive for newcomers. When day trading stocks on equity markets, positions are generally closed at the end of the day. This is done to avoid gapping risk. Gapping risk occurs when factors like news or economic influences cause a company’s share price to open much higher or lower compared with the previous day’s close. 

These are some of our most popular day trading stocks. 

Indices 

When you trade indices, you are trading on the performance of a group of shares listed together on an index. Think stocks listed on indices like the FTSE 100, the top 100 largest companies listed on the London Stock Exchange, for example. Selecting indices gives you exposure to a larger position of the stock market than trading individual stock day trading. Like shares, it’s common to close index positions at the end of the day to a) keep in line with market opening hours and b) protect against gapping.  

5 day trading strategies to consider 

Closing trades at the day’s end isn’t a strategy in and of itself. It’s more a trading style. Instead, we’ll look at five common day trading strategies that show how different approaches can potentially lead to profit. 

Trend trading 

Trend trading following the direction of asset prices, then buying or selling depending on which direction the trend is moving in. 

If there is an upward trend in an asset, where its price might be consistently growing in price, then traders would take a long position and buy it. Likewise, if an asset is showing a consistent downward trend, then trades would take a short position and sell. 

Trend trading is not exclusively used by day traders. You can keep a position open for as long as the trend continues. However, to stick with intra-day trading principles, you’d close your position before the day is over. 

Swing trading 

Short term price movements are the focus of swing traders. They base this off an assumption that prices never go in one direction. They fluctuate instead. Swing traders are looking to make money from an asset’s movements up and down in short timeframes.  

Trend traders want to take advantage of long-term market trends. Swing traders focus more on reversals on price movements instead to make their profits. It is a skill to be able to spot these reversals ahead of time, so may not a suitable strategy for day trading beginners. 

Scalping 

This is a short-term strategy that has the potential to make small but frequent profits. Scalping focuses on achieving a high win rate. The idea is that you can build a big trading account by taking lots of smaller profits over time just as easily as placing fewer trades with longer timeframes.  

One thing to note is that scalping requires discipline. You will need a strict exit strategy because losses can mount quickly to counteract any profits made.  

Mean reversion 

Mean reversion is based around the principle that prices and other value metrics like price-to-earnings (P/E) ratios, always eventually move back to their historical mean value, i.e. its average value. 

Technical analysis is required to pull off a successful mean reversion-based day trading strategy. You need to be able to catch assets where recent performance has been very different from their historical mean. Traders employing this strategy will take advantage of the return trajectory to make profits. 

Money flows 

Money flow is a technical indicator that shows when an asset could be oversold or overbought. Rather than measuring the asset’s price by itself, money flow adds volume to see how many times the asset has been bought or sold across the day. 

The number of trades from the current day is compared against the previous day’s levels to find if the money flow was positive or negative. A score of 80 or higher shows an asset has been overbought. This is a signal for a day trader to sell. A score of 20 or under shows oversold market conditions, which is a buy signal. 

Factors that affect day trading 

Before you begin, familiarise yourself with some of the key factors day trading can be affected by. These apply for any market, whether you’re thinking of exploring forex day trading, shares, indices or other financial instruments.  

Factors to watch include: 

  • Liquidity – Liquidity refers to how easily and quickly positions can be entered and exited. High liquidity is what day traders want because their whole approach is based around making multiple trades across the day. 
  • Volatility – Volatility refers to how rapidly an asset’s price moves. If high volatility is expected throughout the day for a particular asset, day traders will watch it closely as a lot of opportunities for short-term profits can potentially be created. 
  • Trading volume – Trading volume is the measure of how many times an asset has been bought or sold in a given period. High trading volume shows a lot of interest in an asset and it can be useful for establishing entry and exit points. 

A beginner’s approach to choosing how to day trade 

Firstly, decide what product you want to trade with. Derivates, such as CFDs and spread bets, let you day trade without owning the underlying asset, which could be ideal for you as a beginner. You can close or open positions much faster, plus you can speculate on market prices if their rising or falling. 

Consider your markets too. Markets.com offers forex day trading, stocks and shares, indices and a number of other financial instruments for you to choose from. 

Next, outline a day trading plan. Outline exactly what you hope to achieve. Be realistic about any targets you set yourself. Day trading has a steep learning curve. A Marketsx demo account can help you play with day trading without committing any capital but be wary if you expect to make lots of money straight away when live trading with real money. You may be disappointed. 

Your methodology is important here too. Generally, you can base your decisions off two different methods: fundamental or technical analysis. 

If you take a fundamental-led approach, your day trades will mostly be informed by: 

  • Macroeconomic data
  • Company reports
  • Breaking news 

A technical methodology is led by: 

  • Chart patterns 
  • Historic data 
  • Technical indicators 

Managing day trading risk 

Regardless of the products or markets being traded, risk is important to understand for all day trading beginners.  

Stops and limits can be placed on accounts to cease activity when certain negative conditions are met.  

Stock day trading and other types all come with different risk levels, but some day trading principles still apply to nearly everyone. Successful traders know when to cut their losses or spot when their current strategy is not paying off and react accordingly.   

Even the best traders often have low win rates. Sometimes they are below 40%. However, most day traders operate on a target risk-to-reward ratio of 1:2. That means they expect to double the money they are willing to risk. That will be down to you to decide. 

There is nothing wrong with making mistakes. Traders of all levels make them every day. Staying wrong and making a big loss though will probably end your career as a day trader. Be smart and keep monitoring your positions.  

Day trading for beginners can be difficult, but if you keep alert and know when to alter positions you can be successful.  

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