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  • Understanding the risks of spread betting

    Whilst margin is one of the key benefits of spread betting - enabling you to maximise your market exposure - it also presents significant risks that it’s vital to understand if you want to be a successful trader.

     

    As a margined (or leveraged) product, the exposure of your spread bet position is considerably greater than your initial deposit amount. To put it another way, although you only need to deposit a small percentage of the total value of the underlying asset in order to take a position, your exposure to the market is magnified.

    This means that you could lose more than your initial deposit amount if the trade moves against you.

    Using Vodafone shares to illustrate the risks of spread betting:

    Let’s say you want to place a spread bet on Vodafone shares and we currently charge a 5% margin for this market.

    If Vodafone is trading at a price of 220p and you go long and place a buy spread bet with a stake size of £20 per point, the total value of your position - or ‘true exposure’ - is £3,760. (Your stake multiplied by the share value: £20 x 220p = £4,400.)

    As we offer Vodafone shares with just a 5% initial margin, you can trade this market for an initial deposit of only £220.

    So, although your initial deposit is just £220, the true exposure of your position is £4,400 and, therefore, if prices move against your spread bet, you could lose more than your initial deposit amount.

    Tip: even the most experienced traders will encounter a loss at some point in their trading career. The key is to limit these losses by managing your risk efficiently and utilising the full range of risk management tools available to you as a Finspreads client.

    Click here to find out more about managing your risk through open and close orders.

    The limited risk account – perfect for beginners

    As a Finspreads client it’s also possible to increase your confidence with a limited risk account before moving on to a full trading account.

    A limited risk account allows you to enjoy trading, safe in the knowledge that you’ll never lose more than the amount you originally deposited into your account.

    How does it work?

    Every trade you place has an automated guaranteed stop loss order (GSLO) attached to it**. A GSLO automatically closes your trade as soon as it dips below your entry point and protects you against heavy losses.

    No matter your level of trading experience, we have a trading account to suit you. Find out more about the limited risk account and other account types on our account types page.

    **Guaranteed stop loss orders incur a one-off premium.

    Next step: Find out how to apply for an account
  • Open an Account

    Spread bet from 10p per point with tight spreads and low margins

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