Understanding how to spread bet using the IG.com spread betting demo account Christopher Annett ([email protected]) Spread Betting Ticket If you are happy to deal at the current price you can deal there and then. Click into the product you wish to trade and then enter the size amount (amount per point). With shares, £1 per point is the equivalent exposure to owning 100 shares. You can place a stop which will reduce your margin, you can choose a guaranteed stop which will increase your spread by 1 point and you can choose a limit. In this example to buy EUR/USD, €1 = $1.24683. A pip is the 4th number after the decimal place, in this example 8.3. A point move in currency trading is a pip movement. So if the sell price moves to €1 = $1.24693, then you make 1 point. At £10 per point, you would make £10. Deal Stop and Limit A Stop is an instruction to deal at a less favourable level than the current price. A Limit is an instruction to deal at a more favourable level than the current price. Let’s say the current price for the FTSE100 is 6699 (sell) 6700 (buy). Buy stop kicks in at 6709 – lose 10 points Sell limit kicks in at 6710 – gain 10 points Go short at 6699 Go long at 6700 Buy limit kicks in at 6689 – gain 10 points Sell stop kicks in at 6690 – lose 10 points It may be more convenient to leave an instruction to deal should a specified price requirement be met. A buy stop has to be above the current buy price and a sell stop has to be below the current sell price. A buy limit has to be below the current buy price and a sell limit has to be above the current sell price. You can then place contingent stops and limits. Order to open Stop and Limit If you set a contingent buy stop when neutral (no open positions), then the stop will be below and the limit will be above the order level. If you set a contingent sell limit when neutral, then the stop will be above and the limit will be below the order level. Buy stop must be above current buy price Sell limit must be above current sell price If short or neutral If long or neutral Buy limit must be below current buy price Sell stop must be below current sell price Margin Requirements The margin is always a fraction of what it would cost to buy the assets directly. Margins are calculated differently depending on the product and market. A 10% margin means that for just £10 you get the same exposure as a £100 investment. This represents a leverage of 10 times, or 10:1. So if the investment goes up by 20%, to £120, you have made £20 on a £10 investment or 100%. Margins are reduced by stops and by guaranteed stops (extra spread). No Stop Bet size x margin factor 10 x 23 = £230 With Stop (Deposit requirement for no stop x slippage factor %) + (bet size x stop distance from current level) (£230 x 0.20) + (£10 x 6) = £106 Maintaining Margin With IG if the account equity (cash balance +/- running profit/loss) doesn’t cover your margin requirement, they may partially or fully close your positions. In this case the equity (£14,462 - £5) easily covers the margin of £230. Time Frames Under daily you can choose the candlestick time frame or choose tick data. Choose the time period you are interested in trading, say daily, and then use a shorter time frame, say 4 hours to determine when to place the trade. Technical Tools Aroon is an indicator which that helps investors identify trends and their strengths. A 14 day Aroon looks at how long it has been since the 14 day high and 14 day low. If the number of days since the last 14 day high is zero, the Aroon up line (green) will be at 100. If it is 1 day it will be at 92.9. When the Aroon up line is above the Aroon down line the overall trend is considered up, and vice versa. FTSE 100 Average True Range (ATR) graphs measure the volatility of financial instruments. A high ATR indicates high volatility and a low ATR shows low volatility. The ATR is the moving average of the greatest of the following: current high minus the current low; the current high minus the previous close; the current low minus the previous close. Periods of low volatility are usually followed by periods of high volatility. Traders should use larger stops and profit targets as ATR increases. FTSE 100 The Awesome Oscillator compares market momentum over a 5 period moving average and 34 period moving average. Buy saucers occur when there is a temporary reversal of 2 bars and then the trend continues in the same direction. A nought line crossing can be bullish (if above 0) or bearish (if below 0). Two pikes sell signal occurs when the second peak above the zero line is below the first peak. Two pikes buy signal occurs when the second peak below the zero line is higher than the first peak. Saucer Germany 30 Peak 1 Peak 2 Bollinger bands are envelopes based on a moving average and a standard deviation. In a ranging trend, Bollinger bands represent support and resistance. If the bands squeeze and the price is hugging the bottom band, this is bearish and vice versa. If the price significantly penetrates the upper or lower band this could signal overbought or oversold. FTSE 100 Chaikin’s volatility indicator calculates the volatility as the trading range between high and low prices for each period. This calculation does not take trading gaps into account when quantifying volatility. Very high volatility can be associated with trend reversal. FTSE 100 The Commodity Channel Index (CCI) is a technical indicator which measures an asset’s current price in relation to its average over a given period of time. CCI values of above 100 typically mean that prices are unusually high compared to the average and vice versa. In a ranging trend this can signal overbought or oversold. Alternatively it can signal a strong upwards trend or a strong downward trend. FTSE 100 The Detrended Price Oscillator (DPO) attempts to filter out long term price trends in order to highlight the underlying cycles of price movements. Go long when the price crosses above the zero line and go short when the price crosses below the zero line. When the oscillator shows a higher trough expect an upturn and when the oscillator shows a lower peak expect a downturn. FTSE 100 The Directional Movement Indicator (DMI) indicates when a definable trend is present. When the ADX line is increasing, it indicates the trend is strengthening. When the ADX line (black line) moves above the +DI (green line) and –DI (red line) it signals that the market is becoming overheated. +DI rising above –DI is bullish when the ADX line is increasing and –DI rising above +DI is bearish when the ADX line is increasing. FTSE 100 The Exponential Moving Average (EMA) is similar to the simple moving average, except that more weight is given to the latest data. EMAs help confirm the trend – short, medium and long term. A simple strategy is to buy when the price closes above its EMA and vice versa. A bullish crossover strategy occurs when a shorter term EMA moves above a longer term EMA and vice versa. FTSE 100 The Ichimoku Cloud is a versatile indicator that defines support and resistance, identifies trend direction, gauges momentum and provides trading signals. Bullish signals occur when the price moves above the cloud and when the red line crosses above the blue. A purple line above all other indicators is bullish confirmation. FTSE 100 The KDJ indicator is essentially a stochastic indicator with an extra line, marked J. A negative value of J (green) with K (black) and D (red) on the bottom range indicates an over sold condition. A value of J above 100 with K and D on the top range indicates an over bought condition. K moving above D is bullish and vice versa. FTSE 100 Moving Average Convergence Divergence (MACD) is a trend indicator. A bullish signal occurs when the MACD (blue line) crosses above its signal line (red line) and vice versa. A divergence is bearish when the stock price makes new highs while the MACD fails to make new highs. Germany 30 The momentum indicator is a speed of movement indicator, used to detect trend weakness and likely reversal points. The indicator shows trends by remaining positive while an uptrend is sustained and negative while a downtrend is sustained. A bullish signal occurs when momentum crosses above zero (goes green)and vice versa. FTSE 100 Drawing Tools Use drawing tools to help plot support and resistance. Trend lines are support in an uptrend and resistance in a downtrend. Fibonacci is plotted at the beginning and end of a trend and shows potential retracement levels. Gann fan’s are plotted from a pivot point and provide major areas of support and resistance. Alerts For many indicators you can set an alert which tells you when a condition has been met.