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 Post subject: Question re the spread
 Post Posted: Thu Feb 16, 2012 8:33 pm 
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Location: London
Hi,

I am struggling to understand how to adjust my orders to take the spread into consideration.

When do you pay the spread, on buying, selling or both?


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 Post subject: Re: Question re the spread
 Post Posted: Fri Feb 17, 2012 10:01 am 
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Hi aspeich,

Welcome to the forum.

The spread is the difference between the buy(ask) and sell(bid) price. Therefore if you want to buy you pay the buy price and then sell at the sell price. Here's an example.

BP trades at Buy 350, sell 349. Therefore if you were to buy then sell immediately you would lose 1 point, because you paid 350 to buy and only received 349 when selling. The converse is true if you make a short(sell) trade. Therefore as soon as you enter the trade buy or sell you have paid the spread as you will only be able to but or sell out of the trade at a worse price. (Hopefully this makes sense if not let me know)

In terms of taking the spread into consideration for orders you need to add or subtract the value of the spread from a stop order. For Instance you want to buy BP @ 350 and technical analysis indicates a support level at 300 so you want to place your stop at say 295. You may also want to consider the spread here thus reducing by 1point(the full spread). You may want to err more on the side of caution as during volatile trading the spread can widen. I've been caught by this a few times with some stocks spreads widening to 17 points.(Needless to say I was stopped out of the trade.) Therefore you might want to double the spread an remove that from your stop location.(This example is for a buy trade, the converse is true for a sell trade).

Anyway hopefully that has shed some light on your questions. If you have any more or don't understand anything fell free to ask more.

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May the markets be with you!

Harry,
The Spread betting beginner


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 Post subject: Re: Question re the spread
 Post Posted: Fri Feb 17, 2012 10:36 am 
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Joined: Thu Feb 16, 2012 2:45 pm
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Thanks for the reply. It makes sense, I am going to digest this then come up with a real world example of my own.

I'll be back :)


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 Post subject: Re: Question re the spread
 Post Posted: Fri Feb 17, 2012 1:42 pm 
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OK, excellent. I look forward to your 'real world example'

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May the markets be with you!

Harry,
The Spread betting beginner


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 Post subject: Re: Question re the spread
 Post Posted: Fri Feb 17, 2012 8:54 pm 
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Location: London
SAB.L

Day High = 2547.5
Day Low = 2519

Bid = 2535.7
Ask = 2538.8
Spread = 3.1

I want my buy order to be executed at the break of the high of the bar (2547.5) with a stop loss to get me me out if the price falls below the low (2519).

So I add 0.1 to the high and subtract 0.1 from the low

Buy stop = 2547.6
Stop loss = 2518.9

Now I need to take the spread of 0.3 into consideration, so I enter in the below into the order form:

Buy stop = 2550.7
Sell stop = 2515.8

Am I on the right track?


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 Post subject: Re: Question re the spread
 Post Posted: Sun Feb 19, 2012 12:28 pm 
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aspeich,

Before I answer this question I need to make sure you have read my Risk Warning & Disclaimer. I am in no way professionally qualified to answer this question and therefore this is not advice or a recommendation to trade. My answer is purely for educational purposes.

Right that's that out the way now here's my answer.

To answer this question properly we need to know if the Day High & Day Low are based on the bid, ask or mid price of the instrument in question.

That said I think what you have done is roughly correct. You've added the spread to the buy price and subtracted it from the sell price. I'm not sure why you've used 0.1 but I assume it's so your not buying/selling at the exact price your chart tells you. This is actually a good point to make here. You want to be confident that a break out has taken place before buying or selling and that you are not just getting stopped in or out of a trade because of market noise. I'm not sure that 0.1 in this case is enough to eliminate that but I'll leave that for you to decide upon. Besides I cannot say for sure what will be right or wrong. As always the chances of success are 50/50 however if you're confident your strategy gives you an edge you should do slightly better over time.

I hope this has been of some help. Feel free to ask more questions if there is anything you don't understand.

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May the markets be with you!

Harry,
The Spread betting beginner


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 Post subject: Re: Question re the spread
 Post Posted: Sun Feb 19, 2012 4:50 pm 
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Joined: Thu Feb 16, 2012 2:45 pm
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Location: London
Don't worry I won't attempt to sue you if SAB tanks :)

I would imagine the chart I am looking at is based on the mid price (I use prorealtime), that is usual isn't it? The FT has the same prices as my chart for the high, low, close and open on Friday for SAB.

Yes you are correct regarding the 0.1 pips, it may not be sufficient as you say, but trial and error, I will learn the hard way.

50/50? I like those odds :)

OK I have a demo order in place to buy SAB when it reaches my required price, let's see how it goes.


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 Post subject: Re: Question re the spread
 Post Posted: Sun Feb 19, 2012 7:50 pm 
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I use proRealTime too and I think by default it uses the mid price. Most of the spread betting firms show charts based on the bid price which is why I asked.

Trial and error is the best way, (in my opinion). I personally think the only way we learn is by making mistakes. Of course there are some mistakes that common sense tells us we should avoid but with spread betting anything can and will happen. Best if luck with your trade. Do let us know how it pans out.

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May the markets be with you!

Harry,
The Spread betting beginner


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 Post subject: Re: Question re the spread
 Post Posted: Sun Feb 19, 2012 7:57 pm 
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Prorealtime is great imo. You'd think they'd give the option to show the bid and ask though, I looked but couldn't find a setting.


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 Post subject: Re: Question re the spread
 Post Posted: Mon Feb 20, 2012 9:22 am 
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Joined: Thu Feb 16, 2012 2:45 pm
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OK, so this is the part that confuses me. I was hoping to got filled around 2547.6, this morning I have been filled at 2551.3, 3.7 pips higher.

It's hardly a fast moving market today. Is this normal?

Seems a bit silly to add three pips to my required level and then my order is executed three pips higher anyway right?


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