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Leverage.


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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 ?

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This link will help refresh your understanding of Margin and Leverage:

https://www.ig.com/uk/trading-strategies/what-is-margin-in-trading--200224

"Margin in trading is the deposit required to open and maintain a leveraged position using products such as CFDs and spread bets. When trading on margin, you will get full market exposure by putting up just a fraction of a trade’s full value"

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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%

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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.  

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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.🙃

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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
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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
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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

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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
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5 hours ago, Caseynotes said:

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).

 

Are you a hungry hippo, just like your Fuehrer Trump?

 

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2 hours ago, jlz said:

Adding to what Caseynotes said, margin is leverage and is not to protect the broker, it is to protect the small retail trader.

 

Blah blah blah

Missing the f*king point, go away

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