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Equity trading costs: how we calculate our spreads on shares

The spread (or bid-ask spread) is the difference between an instrument’s buy and sell prices. It is effectively what we charge you to trade a particular market. If you go long, for example, the price needs to rise above the spread before you can make a profit.

If you are spread betting on shares our spread is made up of a combination of a market’s underlying spread (also known as the raw spread), plus our own dealing spread.

In the case of UK and European shares our dealing spread is 0.1% per side plus the underlying spread. For US shares it is 2.95 cents per side plus the underlying spread.

So say you’re trading Apple and the underlying spread is $143.775-$143.874. We would show you a spread betting quote of 14374.6-14390.4, which consists of the underlying spread plus 2.95 cents each side of the bid and ask price (rounded up).

Spread betting vs CFD accounts

If you’re trading CFDs on US shares, our dealing spread and the underlying market spread are both incorporated into the one quoted spread. This is just the same as when you’re spread betting on shares.

However, when you’re trading CFDs on UK or European shares, our dealing charge is taken as a commission on opening and closing your position. You trade at the underlying market spread and the 0.1% charge per side is applied to your account separately.

This is a key difference with CFD trading, as you see the underlying market spread in your trade ticket when you create your position.

Underlying spreads are variable

There are factors to be aware of that can determine the underlying market spread.

When there is high liquidity in a market, or a high volume of trade, it is easier for trades to be executed quickly in the underlying market. Company stocks traded on the major exchanges are typically considered liquid, but less liquid stocks that are not traded as frequently will tend to have wider underlying spreads.

A major influence on liquidity is volatility. A big negative company news story might cause a massive sell-off in stocks, for example, and lead to widening spreads in the underlying market. Time of day is also a factor as busier periods will have higher trading volumes, potentially leading to tighter underlying spreads.

Tighter spreads aren’t everything

While tighter spreads are in theory better for your potential trading profits, as the price has less distance to travel from your entry price before it hits a profit, it’s also worth remembering that there are other factors to consider, such as order efficiency. There is little point in having incredibly low spreads if there are delays in your order and it is filled at a different price.

Published: 27 February 2019

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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