How to Spread Bet the markets following the Bank of England Decision

LONDON, May 10, 2012 /PRNewswire/ --

Use the following report to plan your strategy for spread betting the financial markets when the Bank of England announce their respective Interest Rate decision and Asset Purchase levels (QE) at 12.00pm today.

What to expect from the decision

Market expectations are that when the Monetary Policy Committee (MPC) meets today (Thursday 10 May), they will hold total quantitative easing (QE) levels at £325 billion.

Last month, Britain saw positive surveys of output in the manufacturing and services sector as well as sticky and above-target inflation levels - even though data from the Office of National Statistics states that the country is back in recession.

However, others are wondering if following the decline of 0.2% in Britain's economy - after a decline of 0.3% at the end of 2011,that the MPC may in fact add £25 billion to the QE. On the other hand, with inflationary pressures increasing, this may threaten the Central Banks ability to announce more purchases.

Indeed, only 9% of the fifty-eight economists polled by Reuters earlier this week expect that the Bank of England will approve further QE later today.

How to Spread Bet the FTSE 100

A market that could be potentially impacted following the decision by the Bank of England today would be the FTSE 100.

Through spread betting provider City Index, you can take a position on the FTSE 100 DFT market and take advantage of a 1 point spread, keeping dealing costs at a minimum.

Going Long the FTSE 100

If you believe that the FTSE 100 will rise following the decision by the Bank of England at 12.00pm today - then you will decide to go long and buy.

In this example, let us say that City Index are offering the market at a spread of 5484/5485 - their sell and buy price.

You place a buy trade at 5485 with a stake of £1.

At 12.00pm you watch for the report through the City Index economic calendar outlining the Bank of England's decision.

You watch the market and notice that it starts to move in your favour and rises.

Once it has reached 5535 you decide to cash in your profits. The spread is now available at 5535/5536.

You sell at 5535, netting you a tax-free* profit of £50, i.e. (5535 - 5485) x £1 = £50.

Alternatively, the market could have moved against you and fallen to 5435. Had this happened, you'd have netted a loss of £50, i.e. (5485 - 5435 x £1).

Going Short on the FTSE 100

Using the same spread as above, say you predict that following the Bank of England's decision this afternoon that the price of the FTSE 100 will fall.

You decide to place a sell trade at 5484 with a stake of £1.

Once again, you wait for the report through the economic calendar and watch the market following the decision.

You had been correct and the decision by the Bank of England has had a detrimental effect on the market's price - causing it to fall.

The market reaches 5454 and you decide to buy back at the new spread of 5453/5454.

As a result, you net a profit of £30, i.e. (5484 - 5454) x £1 = £30.

Alternatively, the market may have risen to 5514 - meaning you'd have incurred a loss of £30.

Spread Betting Risk

As a leveraged product, spread betting can result in losses greater than your initial deposit. It is imperative that you fully understand the risks and utilise the available risk management tools such as stop loss orders, when trading.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting with City Index.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for details.

SOURCE City Index