Jump to content

Leverage.


Recommended Posts

I don't understand what leverage has got to do with spread betting. Surely, spread betting is just that - a bet. If I bet £1 a point that the market goes up then every point it goes up I win £1. If it goes down then I lose £i for every point, simple. I understand margin, it's the amount of exposure that the broker allows according the equity in my account, but leverage seems irrelevant to spread betting ?

Link to comment
On 25/07/2020 at 22:48, jaykay said:

I don't understand what leverage has got to do with spread betting. Surely, spread betting is just that - a bet. If I bet £1 a point that the market goes up then every point it goes up I win £1. If it goes down then I lose £i for every point, simple. I understand margin, it's the amount of exposure that the broker allows according the equity in my account, but leverage seems irrelevant to spread betting ?

all of the above but just to add that margin is leverage, just looking at it from the other side, so

leverage 1:30 = 3.33% margin  (1/30 = 0.0333 x 100/1 =  3.33%)

                 1:20 = 5%

                 1:10 = 10%

                 1:5  =  20%

                 1:2  =  50%

  • Thought provoking 1
Link to comment
2 hours ago, dmedin said:

Every single one of you has hilariously missed the OP's point completely.

The OP has an incorrect understanding of Margin.  If he refreshes his knowledge then he will also understand how it relates to Leverage, and then will understand that it is not irrelevant to spread betting on the IG platform.

Most replies are guiding towards resources to help him improve his understanding and increase his knowledge on this.  That a good example of a community being helpful.  

No one is debating his interpretation of the P&L impact of price movements in the asset being bet on.  

Link to comment
5 hours ago, jaykay said:

dmedin

Yes I think you get my drift ! Thanks.

Everyone is suggesting that I don't understand the concept of leverage. I am beginning to wonder if they understand the concept of spread betting.🙃

I never assumed that you needed help with understanding what leverage is. 

Again, if you read the link I sent, it  might help you to understand why they say that spread betting is a "leveraged" product.

Edited by jlz
  • Sad 1
Link to comment

Thank you jlz

I have read your link to the highly esteemed Investopedia and I can find absolutely no reference to spread betting being a leveraged product. In fact, it seems to concur with my original post, that spread betting is betting and has no relevance to leverage.

Dmedin makes the point that the so called leverage as referred to in spread betting is 'notional'. I agree. but I would go further and suggest that margin in spread betting is equity to protect a spread betting company's interests in the case of a 'black swan event'.

For example - if you had not put a stop loss and the market suddenly tanked or like when the Swiss Franc made a dramatic short in 2011. 

Investopedia does make reference to spread betting companies adding small margin to the spread but this is not leverage or margin in the sense that I am referring to here.

IG say that they balance their book, winning clients against losing clients that their profits come from the spread, which is what spread betting is all about.

Perhaps IG would correct me if I am wrong ?

But I will lay 10/1 against. 😉

Edited by jaykay
spelling
Link to comment
9 minutes ago, jaykay said:

Thank you jlz

I have read your link to the highly esteemed Investopedia and I can find absolutely no reference to spread betting being a leveraged product. In fact, it seems to concur with my original post, that spread betting is betting and has no relevance to leverage.

Dmedin makes the point that the so called leverage as referred to in spread betting is 'notional'. I agree. but I would go further and suggest that margin in spread betting is equity to protect a spread betting company's interests in the case of a 'black swan event'.

For example - if you had not put a stop loss and the market suddenly tanked or like when the Swiss Franc made a dramatic short in 2011. 

Investopedia does make reference to spread betting companies adding small margin to the spread but this is not leverage or margin in the sense that I am referring to here.

IG say that they balance their book, winning clients against losing clients that their profits come from the spread, which is what spread betting is all about.

Perhaps IG would correct me if I am wrong ?

But I will lay 10/1 against. 😉

Leverage is margin, margin is leverage. Spread bets are CFDs with a name and interface change to get it under UK tax laws.

IG matches trades in-house as far as possible and the residual is hedged on the open market.

The margin is not notional at all, the capital you put up is far less than your total exposure.

If you're going to listen to the likes of gutter mouth Dmedin you are going to lose a lot of money (just like him).

Discover the benefits of spread betting

"Trading using leverage magnifies profits and losses, as these are calculated based on the full value of the position, not just the initial deposit. This makes it important to create a suitable risk management strategy and to consider the full amount of capital that you are putting at risk."

image.png.0cca4eeaa76a75b0c158e3bccffc3484.png

Link to comment
3 hours ago, jaykay said:

Thank you jlz

I have read your link to the highly esteemed Investopedia and I can find absolutely no reference to spread betting being a leveraged product. In fact, it seems to concur with my original post, that spread betting is betting and has no relevance to leverage...

Adding to what Caseynotes said, margin is leverage and is not to protect the broker, it is to protect the small retail trader. When talking about spread betting, margin and leverage are used to define the same concept. 

The link I sent refers to the ESMA regulations, there are multiple references to spread betting and there is a specific paragraph related to IG, noting that they claim to do a different kind of business compared with other brokers:

https://www.thearmchairtrader.com/spread-betting-cfd-changes-under-the-new-esma-leverage-rules/

In this link they go in detail about the specific margin required to trade on spread betting and CFDs, you can see how the title is labeled as "leverage restrictions" and in the text the use the word "margin". 

Margin is there to protect the small retail trader for one simple reason, there are many people that don't understand that trades can go against you and can wipe your account in minutes. Margin requirements are bound to the usual price fluctuations in a market, if you look at any market you will see that your margin depends on the price as well as the average volatility, so you are "forced" to have an stop that is defined at least by your margin. Meaning that if you don't have enough funds in your account to support a margin call you shouldn't trade in that market at all.

Before those regulations came in place, what happened is that people didn't account the usual price volatility in their trades so they didn't have enough funds to support the trade going against them, resulting in either getting a stop call or a negative balance in their account. 

I know it is easier to think that brokers are in the dark side but those regulations are coming from the ESMA . At the time those regulations came in place pretty much every single broker tried to stop them. They sent many emails out saying they were trying to stop the enforcement of the regulation. Of course, think about that they had many retail trades that went to trade with 1K knowing nothing about trading, getting stopped and wiped in days. 
Those regulations stopped many people opening an account because 1K wasn't enough to play anymore, it wasn't ever enough but after the regulations were enforced, it became obvious. So the regulations went directly against any broker business.

Edited by jlz
  • Sad 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      22,988
    • Total Posts
      95,311
    • Total Members
      43,596
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    Mamzy
    Joined 23/09/23 05:19
  • Posts

    • Just now, according to Glassnode data, the number of addresses holding more than 100 BTC has reached a four-month low, currently standing at 15,955.
    • Bitcoin and other major crypto experienced a dip in value on Thursday, erasing gains made earlier in the week. The decline came after the Federal Reserve signaled that interest rates would remain high for an extended period, with Bitcoin retreating 2.3% to $26.5K. Despite the bearish pressure,  the founder and CEO of Bitcoin joint mining company Xive,  Didar stated that the stagnant rate increase is positive for Bitcoin. He suggested that this could reduce the attractiveness of mainstream financial assets to institutional investors in the long term, potentially driving a new rally in Bitcoin's price. Major altcoins and exchange tokens also struggled on Thursday, with ETH changing hands at $1,585, down about 2.6% from Wednesday. Other altcoins such as BNB and BGB also experienced losses. Despite these challenges, some analysts believe that Bitcoin is likely to remain within its recent range between $25,000 and $30,000. Riyad from digital asset data platform Kaiko, noted that the market needs a catalyst to mount any serious rally.  What are your thoughts? 
    • Traditional banking systems served as the gatekeepers of financial services for long, dictating how people access loans, save, and invest in opportunities. Typically controlled by a centralized system with a single authority such as a bank or government in total charge, this centralization is limited by high fees, restricted accessibility and slow transaction speed. Dentralized finance, DeFi, got introduced as a blockchain-based financial system that removes intermediaries or central authorities, and utilizes smart contracts instead. By eliminating intermediaries, DeFi delivers core benefits like improved accessibility into the financial system for everyone having internet connection regardless of their location. DeFi is also valued for its transparency. While traditional banking system often deny customers audits on how their assets are being managed, DeFi, through the help of blockchain allows anyone access to tracking and auditing transactions, thereby raising trust. Furthermore, DeFi also offers various financial services and products like DEX, lending and borrowing, stablecoins etc, all known to proffer varied innovative solutions, while operating 24/7 in contrast to traditional finance. DeFi isn’t flawless as issues like insecurity, lack of consumer protection etc are still prevalent; however, the growth of DeFi has been impressive; since its introduction, the total value locked in DeFi protocols has grown significantly indicating that the demand for DeFi services is fast growing. DeFi seems to be redefining financial industry by offering an alternative to traditional banking systems. With the increasing adoption, can we expect to see an overhaul in the way we access financial services?        
×
×
  • Create New...
us