We have heard of scalping as one of the various tested strategies in spread betting. However, does it really work in the foreign exchange market considering the innate nature of this market? Well, like the other short-term modes of trading, scalping is applicable when you are trading forex too. After all, it is true that this is still the strategy posing the lowest risk because of its minimal exposure to the market. It is in this light that it is highly recommended for beginners.
Looking for the triggers
First and foremost, it cannot just be applied randomly. This is because you still need to spot opportunities when you can use it. Specifically, you should be rooting on markets that will most likely move in the next couple of hours. It is in this regard that it is very much applicable in the foreign exchange market. Consequently, you need to watch out for news items and trends that will serve as the triggers for the market to move.
Is it for you?
If you want to have little, but assured, earnings, then you should go for this strategy. You only need to patiently identify opportunities where you can earn little by little profits. However, this seems to be not applicable or ideal for those experienced traders. This is because they tend to prefer those spread betting strategies that will require less work, but greater returns or profits.
Setbacks and Downfalls
On the other hand, however, while this may offer little but almost ensure earnings, it has some costs too. For instance, broker fees could accumulate. This is because the more you will trade using this strategy. The most fees you need to pay for the broker. Aside from that, traders leave this kind of technique through time because of the minimal earnings. Of course, anyone would want great profits. With this strategy, you really need to work hard in order to gain significant profits at the end of the day. In other words, this will surely test you patience too. Aside from a lot of work, traders might end up discontented with the profits they have at the end of the day. Hence, it may not be worth the time and effort for some people too.
Spread betting, particularly in the foreign exchange market, using the current affairs as the basis of the position is about relying on both social and political indicators in order to make a position. This is because some people think that these indicators have a great impact whether the values of the currencies will either go up or down. These indicators are those that are commonly being released on a cycle. Hence, they can be somehow predictable. However, there are also some economic or social aspects that may come to the market unannounced. In other words, they might just come into surprise. In this regard, there are few things that you need to know if you are planning to use this kind of strategy too. These are specifically about how is it being done, does the strategy suit you, as well as its pros and cons.
What is trading on current affairs and how is it done?
Firstly, trading on current affairs as a spread betting strategy in the foreign exchange market is usually being used by who people who do not possess the thorough understanding on the principles and technicality of the market. Hence, it is plainly making a position based on an announcement or a possible announcement. However, it is not just that. This is because you have to look into the triggers in order to make this worthwhile. Of course, you cannot just make a position after the announcement because it would already be too light. Timing is very vital here. You need to find out those factors that may lead to a social event, aside from those anticipated announcement. This could be the upgrading or downgrading of a country’s credit rating, which will surely have an effect to its currency value.
Is this for you?
If you have the interest on news, politics and social factors, then this could be a profitable spread betting strategy for you, most especially if you are a started in the world of foreign exchange market. Later on, you can further develop this to a stronger tactic that may provide you a more solid ground. For example, you can combine this to other technical trading strategies like momentum trading in order to make it even more effective. This is because momentum trading will introduce bases on numbers in order to make positions.
Pros and Cons
In terms of its advantages, it is fair enough for those who are just beginning to learn spread betting on foreign exchange. This is because it provides you a platform to take advantage on the most volatile point of the market. However, since it is a critical point, there is also a chance that you can lose money here too. It is in this light that you have to be committed in monitoring the news in order to have a sharper interpretation of the current affairs and its most probable effect to the market.
The foreign exchange is one of the most popular and global form of trading and investment vehicle. Through time, the investment for this platform is no longer limited to mere exchange or trading of currencies. Instead, it has emerged to more instruments like financial spread betting. Hence, people can now engage into forex market using the spread betting platform. However, the tactics for this market could be slightly different from what is traditionally known as spread betting strategies. One example of this is momentum trading.
What is momentum trading?
As the name suggests, it has something to do with momentum. In other words, what this means is that traders follow the market trading. Since the forex market is bigger than the traders as individuals, the application of this strategy should be concerned of the bigger picture. Hence, this only shows that this strategy is long-term kind of strategy that allows traders to capitalise on various major events and even announcements that will surely have a great effect on the currency that is currently being traded.
Essentially, what this strategy simply means is that traders have to look for momentum in order to determine the time and manner that they are going to execute a position. However, it must be noted that it is not the short-term picture of the price movements. Rather, traders should be looking into the wider price trend, which will then require more technical analyses. For example, it should be done by taking the price points in several months and then look into how they are performing. From there, what traders need to do is to choose a spread that they think would be highly profitable in the coming days.
Who should do it?
Definitely, this kind of spread betting strategy is not for the day traders or those who only want to make money in the short-run. Instead, momentum trading is for those traders who have a slightly long-term outlook. This is because day traders only look into the events that happen today. However, long-term traders are looking into a perspective, which is a bigger picture in order to make money. Hence, they are more interested to know the trends that are happening in the past weeks or even months. This opens more windows for greater earnings compared to the level of profits that can be gained in day trading.
What is the catch?
Of course, like any other spread betting strategies, this momentum trading may also have some downfalls too. Being a long-term type of strategy, this means that the position will have more exposure to market risks. This is a disadvantage because it may take things out of control for the trader. It is in this light that more careful decisions should be observed.
Tram line trading is, indeed, one of the most popular spread betting strategies. This is because most of the traders would recommend this, especially those who are into technical analysis. Essentially, some would say that it is a simple task of connecting the dots. This will require a trader to refer to a graph in order to see the market trend, in terms of the highs and lows of the price levels.
How to make tram lines?
Tram lines are usually derived from existing graphs and charts, which are readily available in most of the online trading platforms. Traders will then notice that graphs show fluctuations of the price of a particular market. These are the turning points, whether the trend is going up or down. Hence, these are the critical areas that the eyes of the traders should be focusing on because these are the levels wherein the market will most likely reverse. Well, this could be because the asset is already becoming overpriced or underpriced.
On the one hand, the resistance level is when the market is opt to devaluation while, on the other hand, the support level is when the price of the market will most likely reverse and go up. In other words, the resistance levels are those points that traders will find in the upper part of the chart while the support levels are those in the bottom.
Now, traders only need to make a line among the resistance points and another line among the support points. The lines should be parallel with each other. Between these lines is the safe area because these are the relatively stable level wherein the market will most likely not reverse abruptly.
Caution for Tram line traders!
However, while tram line trading is among the most notable technical spread betting strategies, traders should be mindful of some cautionary measures when implementing it. One of the most important things that they should always remember is to not solely rely on technical analysis. Beyond the graphical illustrations of the market’s turning points, traders should be able to understand that there are underlying circumstances and events that lead the market to behave in such a way. Hence, they should be able to find out the events during those turning points.
For most people, they think that committing some mistakes is a failure, most especially when it comes to financial spread betting or any investment vehicles. However, this would only be true if the trader will not learn from those mistakes or commit them more than once. If the same mistakes are being committed recurrently, then that is the time to think that there is really something wrong. On the other hand, there are some benefits that we can all use out of those mistakes. This is true not only to those that we make on our own, but to those are made by other people too. Learning from them would be the key to be successful, and not just whining about it.
What are the common lessons that one can extract from some mistakes in financial spread betting? In this regard, the three (3) most common and, presumably most important, are about having or sticking to the plan, putting safety nets and adhering to controls.
Make a plan and stick to it!
First and foremost, the lesson here is not to make plan. This is because most traders always have a plan. However, these plans only happen and exist at the beginning of the trade. The challenge would be on how to strictly stick to it. What usually happens is that traders are unfortunately carried away to the situations. For instance, when they are winning, of course, it would be normal to rejoice. Consequently, since they already have a feeling that it is their day, they will tend to trade more, even if their plan states otherwise. So, when the plan directs the trader to exit the market already, what they do is to trade more.
Put up safety nets!
Secondly, financial spread betting is filled with uncertainties. Hence, it is just practical for traders to put some safety nets, most especially to those instruments that are more volatile. However, the sad part here is that some traders, most especially those veterans ones, take this for granted. So, before they know it, they already lost everything they have.
Have some sense of control!
Thirdly and lastly, control should be the central strategy in financial spread betting. This is because this protects traders from being carried away to the situation. It could be hard, but it is necessary.