Butterfly Options » Finance

How to Make Money with Future Options Trading

admin — Wed, 13 Jan 2010 23:32:00 +0000

The future option trading has set a new trend that is drawing more and more investors to the stock market. The stock promoters and other parties involved play an efficient supportive role to the traders who are active participants in the stock market. It also allows you to trade in a number of items like cotton, gold, bond to name a few. Stock indexing is another concept that is gaining popularity and is today a much sought after practice.
With future option trading brokers can connect better with the realistic situations. Getting quotes is made easier. It provides the traders and the brokers access to a lot of information. The studies and predictions are based on several models and practices. They try to interpret with the help of models like “Black-Scholes” and also involve various calculations like gamma, delta, theta and vega. The traders before entering into future option trading should however have a thorough knowledge of how the market functions and a good idea of the related technical terms, the studies involved for making various decisions.
Stockholders and even the future option trading brokers would be aware of new and better schemes like Brokerage services that cater to all the requirements, charts that would be helpful, regular quotes and the like. With time the tools and methods used for analysis have undergone a major improvement. Brokers and even investors in the stock market and option trading have better tools of analysis as compared to what was available a few years back.
This seems to be just the right time to make an entry into the future option trading so that you could actually make use of your acquired knowledge. Take advantage of the market movements and work out your investment strategy in a such a way that you make a profit. There are several tools available for study and you could try understanding the various tools and how they can be used to make the most of the prevalent market conditions.
The strategies that are used today is also a highly developed version of what was being used a few years back. Equip yourself with knowledge and make an entry to put your theoretical knowledge into practice. Read up all the available material to improve your knowledge base. Any sort of market news or information would also make a difference to your investment strategy and how the market would react. It would be best to be updated about the latest happenings and make the most of the available opportunity and enter the world of future option trading.

Stock Option Trading Millionaire Principles

admin — Sun, 10 Jan 2010 00:28:16 +0000

INTRODUCTION
Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.
I have seen paupers become millionaires overnight…
And
I have seen millionaires become paupers overnight…
One story told to me by my mentor is still etched in my mind:
“Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market’s direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!’”
The point of this illustration is that it was the trader who was wrong. In today’s stock and option market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.
I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.
You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and options trading.
PRINCIPLE 1
SIMPLICITY IS MASTERY
When you feel that the stock and options trading method that you are following is too complex even for simple understanding, it is probably not the best.
In all aspects of successful stock and options trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.
PRINCIPLE 2
NOBODY IS OBJECTIVE ENOUGH
If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.
No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.
PRINCIPLE 3
HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES
This is the most important principle.
Most stock and options traders do the opposite…
They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.
This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.
PRINCIPLE 4
BE AFRAID TO LOSE MONEY
Are you like most beginners who can’t wait to jump right into the stock and options market with your money hoping to trade as soon as possible?
On this point, I have found that most unprincipled traders are more afraid of missing out on “the next big trade” than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.
The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.
PRINCIPLE 5
YOUR NEXT TRADE COULD BE A LOSING TRADE
Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn’t pretty, is it?
No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.
PRINCIPLE 6
GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY
You know by now how different paper trading and real stock and options trading is, don’t you?
In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don’t you?
What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.
After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.
PRINCIPLE 7
YOU ARE A NOVICE AT EVERY TRADE
Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?
Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.
PRINCIPLE 8
YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE
Ever followed a successful stock or options strategy only to fail badly?
You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, “The investor is the asset or the liability, not the investment.”
Understanding yourself first will lead to eventual success.
PRINCIPLE 9
CONSISTENCY
Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.
Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.
In conclusion…
I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.

Trading the Gold Market to Go Up and Down

admin — Thu, 07 Jan 2010 23:38:51 +0000

Gold has had a tremendous year. The flight to the perceived safety of gold, as well as the US Dollar weakness, has pushed the metal straight through the $1,000 per ounce mark and up to $1,200.However, it has not been a smooth upward journey. Investors should be aware that ‘pull backs’ in gold can be very violent indeed. We have had two major retracements in the last four years from fast rallies. Both of these finally ran out of steam but not before wiping out at least 25% of the price. If the same were to happen this time, Gold would slip towards the $900 mark.The acceleration of the gold market towards the end of 2009 was remarkably similar to the March/May move of 2006 and Oct/March 2007/2008. Both of these rallies saw sharp pull backs before regaining the upward momentum. The current target for the more aggressive gold bulls remains $1400. This level is a good deal closer now than when it was first mentioned by certain analysts. Having said this, it must be mentioned that Gold is having problems getting to $1,400.As it turns out, the problems concerning Dubai presented a massive buying opportunity. Of course, Dubai did give us the lesson that ‘the markets are prone to sharp declines’. Any such decline could shake out many bulls and compound moves to the downside.That is the risk of getting in at these levels. Whilst the upside could be fantastic, investors must have the stomach for possible shocks to the downside. On a bad day that could be as much as 5% in a couple of hours. So what to do? One option is to spread bet on gold. With spread betting you can trade in both directions. If the market looks like it will continue up, then you could bet on it to go up. Likewise, if a correction is due you can look at betting on the price of gold to go down.All forms of financial investment have the potential for incurring losses. For example, trading in stock, property, investment funds and pensions can lead to you losing money. With spread bets your losses can exceed your initial investment.Nevertheless, spread bets are a simple way of a) gaining access to the gold market and b) being able to trade the market in both directions.Yes, the gold market may move the wrong way. However, there are measures you can take to reduce your risks. You can add a Stop Loss to your trades which will mean that, if Gold moves against your position, the stop loss will close your bet and stop you from losing any more funds.On the plus side, the 24-hour trading that some firms like Capital Spreads offer on key markets can provide several opportunities. Whilst the underlying financial instrument may be closed you can still place trades on markets like Gold, Oil, the FTSE 100 and GBP/USD from Sunday night all the way through to Friday evening.

Trading the Markets and the Financial Recovery

admin — Thu, 07 Jan 2010 14:28:02 +0000

With the world in recovery mode, many people are still questioning how the financial markets got so out of control. They are also questioning something a little closer to home; how to better look after their own money and finances.If we are being honest with ourselves, we would probably admit that we can improve on at least one of the following; long term investments, tax efficiency, actively reviewing our existing investments and looking at new opportunities that the markets in 2009-2010 have provided / will provide.Also, I don’t think that there are many of us who wouldn’t benefit from putting more thought and effort into these key areas. Having said that, there are a growing number of individuals who are making use of a newer, and highly regulated, form of trading.One type of trading, namely financial spread betting, has a range of attractive features and is an option worth considering as part of your portfolio.When speculating though you must always remind yourself that the markets can go down as well as up. With spread betting you can lose more than your original stake or investment.But why trade if there is a risk?Whether you have an existing investment plan or not, it always worth considering any avenue that offers quick, simple access to the markets and a range of tax-free* advantages. Spread betting is one such avenue.Of the many other advantages, spread betting profits do not incur capital gains tax*. You are not actually buying and selling any assets or stock or shares. You are simply speculating on the future price or value of a financial market.A boon for many spread bettors is the sheer convenience of trading over the phone and online, even after the main stock markets and futures exchanges have closed.Another plus point is that there may be occasions when an investor wishes to close a spread bet early. This can work in two ways. It can help you limit a losing position or it can also help you lock in profits on a winning trade.The Financial Services Authority regulates the spread betting companies. This helps to ensure a certain level of quality or, more importantly, financial protection. With regulated companies like paddypowertrader you can trade some markets 24 hours a day, including key Forex and Stock Market Index markets. Naturally, you can also trade Crude Oil, Gold, UK and US shares and so on.So whilst there are a good number of positives, it is important to understand the negatives.Spread bets do carry a high level of risk so you should only speculate with money you can afford to lose. Before you trade, please ensure that spread betting matches your investment objectives, make sure you familiarise yourself with the risks involved and seek independent advice where necessary.* Based on current UK Tax law. If you pay tax in a jurisdiction other than the UK then this may be different.

Trading the World Gold Market

admin — Thu, 07 Jan 2010 01:12:52 +0000

Gold has experienced a spectacular rise recently. I say recently, the metal has been trending upwards for months.With limited supply, the pressure should always be easier to apply to the upside. However, if this were the only argument then precious metals prices should never really fall.Perhaps the market is not particularly overbought at the moment so there is still good room for manoeuvre to the upside; unfortunately, the same can of course be said for the downside.We are in uncharted territory. With inflation remaining weak, interest rates likely to stay low, the US Dollar showing no real signs of recovery, banks still looking a bit weak and fears over the strength of the rebound in world growth, all the factors pushing Gold to the upside continue to linger on.Looking at gold on a given day though, the price can easily rally on any weakness in the US Dollar. Of course when a market jumps like that then some investors will inevitably close their positions and take their profits. That can then cause the markets to fall, albeit temporarily.This having been said, selling Gold has proved to be an expensive mistake for quite some months. Aside from minor corrections, the price has slowly ground higher through the whole period.Not only this but since breaking above the critical $985 level back in September 2009 and then repeatedly failing to get back below it, the omens have started to favour yet another spike higher.In an era of concern over the value of assets, gold holds its age old allure. There is still much uncertainty in the markets. The big recipient of all this uncertainty remains the precious metal and it is tempting to speculate that no matter which currency gains the upper hand, the continued undervaluation of the emerging BRIC country currencies will perhaps drive the price of gold to undreamt of levels.So what are the options for the investor? I prefer to spread bet on gold. However, before I continue, it should be noted that, as with all forms of speculation, there is a negative side. You can lose more than your initial stake with this from of trading.One of the main reasons for trading gold through spread betting is that you can go long or short with a spread bet. This means you can speculate on gold to either rise or fall, particularly useful in volatile markets.You also get instant access to thousands of financial markets. Yes you can trade gold spreads but you can also trade the future value of foreign exchange markets like Dollar / Yen and Euro / Sterling as well as stocks and shares or the future price of other commodities like crude oil.With spread bets, no assets or ownership rights are exchanged, you are simply speculating on the future price of a market, the benefit here is that spread betting is tax free*.Before you trade though, note that spread betting carries a high level of risk so you should only speculate with money you can afford to lose. Like the adverts say, before trading, please ensure that spread betting matches your investment needs, make sure you familiarise yourself with the risks involved and, where necessary, seek independent advice.* Based on current UK tax law, if you pay tax in another jurisdiction then tax law may vary.

Options: Trading Strategy and Risk Management (Wiley Finance) (Hardcover)

admin — Wed, 30 Dec 2009 19:31:15 +0000

The key concepts and essential strategies behind the successful use of options Written by Simon Vine, a seasoned trader who has over ten years of experience on Wall Street under his belt, Options is the definitive book on options for traders, investors, and risk professionals. Options provides a step-by-step approach to trading, hedging, and investing using options, and shares the key concepts essential to successful options use. Options also explores how to use a wide variety of options strategies and shows readers how to select the strategy that best fits their own psychological risk profile. Filled with real-world examples and proven strategies, this invaluable resource will be of interest to all professionals-and newcomers-who’d like to exploit options for strategic advantage, risk management, or profit. Simon Vine (Moscow, Russia) is deputy head of the investment banking division at Alfa Bank, the largest private financial institution in Russia. He holds an (more…)

Trading the Markets after a Recession

admin — Sun, 27 Dec 2009 12:12:18 +0000

So it looks like we have avoided a 1930’s style depression however the current forecasts still suggest slow growth and a difficult time ahead. So what should you do in a difficult environment with your own finances?If we were to be honest with ourselves, then we should probably accept that we can improve on at least a couple of the following; tax efficient investments, long term investments, actively reviewing our existing investments and looking at new opportunities that the financial markets are currently providingI am sure we all appreciate that we could benefit from planning more. That is not to say everyone is simply sitting on their hands. Many people actively trade stocks and shares.The increase in the popularity of spread betting is understandable. A few of the attractive benefits include the fast nature of placing a trade and the large variety of global trading options on offer.Naturally, as with all types of investment, be it on Stocks and Shares, ETFs, pensions etc, there is a negative side and with spread bets you need to be careful because you can lose more than you initially invested.If there is a risk to your capital then why should you contemplate spread betting as part of your investment strategy? Spread betting can be beneficial on a number of fronts, from tax efficient investments* to ease and speed of making a trade.There are many benefits. For example, spread betting profits do not incur capital gains tax*. You are not actually buying and selling any assets or stock or shares. You are simply speculating on the future price or value of a particular financial market.As discussed, investing does have its risks. Nevertheless, there are things you can do in order to reduce your downside. Adding a Guaranteed Stop Loss Order to your spread bet helps reduce your risks. If you start to lose on a trade and the market continues to move in the wrong direction but hits your Stop Loss then your trade will be closed and you won’t lose any more money.In order to spread bet you do not take possession of any assets or stocks. You are just speculating on the future value of a market. This allows you to place trades quickly and with little fuss, an important feature in fast moving markets.Where to trade? A number of spread trading firms offer the usual benefits of letting you trade thousands of international markets as well as letting you trade outside normal market hours. Companies, like Capital Spreads and FinancialSpreads.com, will also let you trade markets like Crude Oil, Gold, the German Dax and the UK FTSE from Sunday evening all the way through to Friday evening.So whilst there are a good number of positives, it is important to understand the negatives.Spread betting carries a high level of risk. You should only speculate with money you can afford to lose. Like the adverts say, before you trade, ensure that spread betting matches your investment objectives, make sure you familiarise yourself with the risks involved and, where necessary, seek independent advice.What else should you consider when trading?In the numerous chat rooms and internet forums there are many trading tips and theories. Some are fairly sensible, some less so. The following includes some of the more common principles.It is worth having a look at a spread trading practice account. These are free accounts with virtual funds. If you are less familiar with this form of trading then a little practice should help you understand the positive and negatives as well as the various types of bet you can place.Greed can be your worst enemy when trading. It can be tempting to trade lots of positions in lots of different markets. Personally, I tend to trade 0-5 markets at any one time. I have no idea how anyone can fully research and make informed decisions on 20 open trades, especially if they start moving against you.* Since you are placing a bet rather than buying an asset or share, it is treated like a bet by the UK and Irish tax authorities which means your profits are tax free. Tax laws can change.

Trading Butterfly Option

admin — Sat, 26 Dec 2009 12:28:26 +0000

In stock trading, traders avoid spreads of any kind because limiting losses can also limit gains. It is a must to trade in a realistic way. If you trade a three-fold gain, which is the strategy that requires only little up-front capital, you strictly limit losses by neutralizing declining time value while opening the possibility of five to ten fold gains. This is done by holding the position to expiration, wherein it is part of any options players. The Butterfly option involves all these qualities. The butterfly option spread is the result from combined debit spread and credit spread, stuck over three strike prices. The butterfly option is basically the option position that is comprised of two vertical spreads with common price.

The butterfly option involves an opening position wherein options (Calls and Puts) are bought or sold at three different strike prices. This option is has both limited losses and limited profits. There are two basic types of butterfly option. One is the long butterfly that can be created by either employing call options or all put options. Because of put-call parity, the long butterfly that is generated from call options will behave like a long butterfly that is created using put options. In short, it doesn’t really matter whether you employ calls or puts to build the long butterfly option.

The long butterfly option can also be generated by buying an in-the-memory (ITM) call option or selling two at-the-memory (ATM) call options and or buying another out-of-the-money (OTM) call option. This is actually a combination of two opposing vertical spread options thus the name butterfly spread. Combining the profit profiles from the butterfly option, the stock prices will fall which in turn can cause limited losses. Also, if the stock prices jumps too high, limited losses can also be faced. However, in case the stock prices stay intact at the ATM option strike price, a limited profit will suffice in the butterfly option.

With that being said, the butterfly option is a good option strategy for low volatility. This is for the fact that betting on stock price that is not moving much so as to collect maximum profits. This butterfly option is also a low risk strategy because losses are limited when the stock crashes or creeps unexpectedly. The bad thing about this is that this can yield limited profits. In the long butterfly option, the trader can also use all put options rather than all call options.

Short butterfly option on the other hand is the exact opposite of the long butterfly. In this option, if the stock price falls, the trader receives maximum limited profits. Also, when the stock price is high, the trader receives limited profit. But here, the stock price doesn’t change much so the trader is faced with a loss, though this loss is limited as well. Short butterfly option is basically a strategy that is high in volatility but neutral in direction. A warning in both short and long butterfly option is that, they involve buying and selling options at three strike prices. This means that the investor needs to pay three commissions to open the position and another three commissions to close it. These extra commissions need to be considered when determining whether the butterfly will be profitable for any circumstance.

Trading the Dow Jones Index

admin — Fri, 25 Dec 2009 01:14:26 +0000

With the world in recovery mode, many are still questioning how the financial markets got so out of control. There are certainly new investment opportunities in the current environment and it’s always a good time to review your portfolioAccording to Simon Denham of Financial Spreads, “In all this [market uncertainty] it must be admitted that, while equities remain attractive versus everything else, we have not had a serious pull back for quite some time. The fall through June and early July comes to mind but even this did not seem particularly violent at the time.“[As we come to the end of 2009] the Dow Jones appears to have some misgivings about remaining a five figure number. The DJIA has now rejected the 10,000 mark three times. Having said that, we are now uneasily pondering the continuation of the rally”.So to me it looks like the Dow could go either way. But how and where to trade the Dow Jones Index?One option is spread trading – an increasingly common form of trading. There are a wide range of benefits. The variety of trading options, speed and ease of making a trade are making it more and more popular.There are downsides to all forms of investing and with spread trading you need to be careful because you can lose more than your initial investment. Having said that, there is a wide range of markets on offer. You can speculate on thousands of markets from the popular Dow Jones Index and Pound / Dollar exchange rate, to the not so popular Coffee, Dollar / Peso and Interest Rate markets.Also, because you are trading directly with a spread betting company there are no broker’s fees. And, should you choose to do so, you can close a spread bet early. This can help secure profits or prevent further losses.Back to the Dow though, how does the market work? Should you decide to spread bet on the index then, looking at a spread trading website like GFT, you may see a spread of 9800 – 9803.As a result, you could spread bet on the Dow Jones to move above 9803 or below 9800.For this example, you could choose to spread bet £2 for every point the Dow Jones rises or falls.If you bought the Dow Jones at 9803 and the Dow Jones index went up then the spread could change to 9847 – 9850. Therefore, you could close your trade for a profit by selling at 9847.Your Profit (or loss) = (settlement price of the market – opening price of the market) x stakeYour Profit (or loss) = (9847 – 9803) x £2 stakeYour Profit (or loss) = £88 profitThe markets can of course fall, if the market were to drop to, for example, 9761 – 9764 you might decide to close your Dow Jones spread bet to prevent further losses. In that case, you would sell back at 9761.0. So, with the same £2 per point stake:Your Profit (or loss) = (settlement price of the market – opening price of the market) x stakeYour Profit (or loss) = (9761 – 9803) x £2 stakeYour Profit (or loss) = -£84 lossSo whilst the above illustrates the positives, it is important to understand the negatives.Spread bets carry a high level of risk to your capital so you should only speculate with money you can afford to lose. Like the adverts say, before trading, please ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks involved. If necessary seek independent advice.* Tax law can be changed or may differ depending on your personal circumstances.

Forex Trading and the US Dollar

admin — Thu, 24 Dec 2009 12:02:30 +0000

The Euro continues to climb as the Dollar continues to weaken. This market movement is mirrored almost across the board as every other asset class continues to strengthen. Essentially repeating the trend of 2009. But what will happen to the Dollar? The Chinese administration probably sees little need to change its economic policy just yet. China does not want to see a floating Yuan for the damage this would do to its huge UD Dollar holdings. In light of this, the continued use of the Euro, Yen and Swiss Franc as a quasi replacement for the Dollar is unlikely to diminish. While the US persists in its quantitative easing policy, and its more general structural deficits, this state of affaires is unlikely to alter. Having said that, the American economy is definitely coming out of hibernation far faster than many others. There are a certain number of Federal Reserve governors who are less than happy with Ben Bernanke’s dovish approach. So the market trend is still very US Dollar negative and this may continue. The US administration may play lip-service to a Strong Dollar but it will not be unhappy with a slowly weakening currency for whatever reason.The numbers coming out of the various agencies are also indicating renewed strength of the US Economy and, if so, we might be closer than many believe to some form of US Dollar strength.If this is the case, what are the options for the investor? One option would be to sell the US Dollar and then, when the market has turned, speculate on the US Dollar to increase.One simple way of doing this is via a spread betting account. Spread betting gives you access to a wider range of options including international equities, stock market indices, foreign exchange rates and even the price of gold and crude oil.Also I like the fact that you can close a winning spread bet and therefore take a profit, but also that you can close a losing spread bet and limit your losses.But how to trade? – EUR/USD Trading ExampleShould you decide to trade currency spreads like EUR/USD then you might see a spread betting price of $1.4847 – $1.4848.This means you could spread bet on EUR/USD to go higher than $1.4848 or to go lower than $1.4847.With spread betting, you bet on every unit the market rises or falls. With the EUR/USD market a unit is $0.0001 of the forex pair’s price movement.For this instance, you could decide to spread bet £2 for every $0.0001 EUR/USD rises or falls.If you bought EUR/USD at $1.4848 and the forex pair rose then the spread could change to $1.4893 – $1.4894. If this were the case, you might choose to close your spread bet for a profit by selling at $1.4893.Your Profit and Loss = (final value of the market – initial value of the market) x stake per $0.0001Your Profit and Loss = ($1.4893 – $1.4848) x £2 per $0.0001 stakeYour Profit and Loss = $0.0045 x £2 per $0.0001Your Profit and Loss = £90 profitThe markets can of course fall, if the market dropped to, for example, $1.4806 – $1.4807, you may decide to close your trade to limit your losses. If so, you would sell the market at $1.4806.You would do this with the same £2 per $0.0001 stake:Your Profit and Loss = (final value of the market – initial value of the market) x stake per $0.0001Your Profit and Loss = ($1.4806 – $1.4848) x £2 per $0.0001 stakeYour Profit and Loss = -$0.0042 x £2 per $0.0001Your Profit and Loss = -£84 lossIn the above case you were speculating on the Euro to increase. You can also bet in the opposite direction and speculate on the Dollar to increase.Of course with spread betting your stake doesn’t have to be £2 per unit or £2 for every $0.0001. If you prefer to trade in Dollars or Yen you could trade 100 Yen per unit or $5 per unit. So spread trading is convenient but when speculating though you must always remind yourself that the markets can go down as well as up. With spread betting you can lose more than your original stake or investment.Spread betting carries a high level of risk so you should only speculate with money you can afford to lose. Like the adverts say, before trading, please ensure that spread betting matches your investment needs, make sure you familiarise yourself with the risks involved and, where necessary, seek independent advice.