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22nd February
2015
written by spread bettor

Introduction

In the financial markets, there is a gamut of products available which a trader can use to customise a trade to his specification. This can be done by utilising derivative products on the exchange using futures and options or through customised over-the-counter products such as spread betting.

What is financial spread betting?

Financial spread betting is a method of trading, which involves placing a bet on the movement that the underlying instrument is expected to take. Typically carried out over-the-counter (OTC), spread bets are an extremely high leveraged form of trading. A broker that offers spread betting provides two quotes, i.e.,. The bid and the ask for the underlying instrument. These quotes are “the spread”. A trader aims to predict whether the underlying instrument will fall below the “bid price” or rise above the “ask price” and accordingly places a bet on the expected outcome. As it is an extremely leveraged form of trading, a bet in the right direction can provide compounded returns. However, the same is also applicable to losses incurred. It is, for this reason, important that investors fully understand the extreme risks involved in entering into such trades.

Eg. If a broker quotes the EUR/USD pair having a bid price of 1.2500 and an ask price of 1.2510. A trader can either bet that the price will rise above 1.2510 or fall below 1.2500. If he bets £1 for every pip that the pair rises above 1.2510 and then the price rises to 1.2520, he will make a profit of £10. Similarly, if it falls to 1.2500, he would lose £10.

Arbitrage opportunities while spread betting.

spread betting arbitrageArbitrage, in the case of spread betting essentially, involves taking advantage of a difference in the price quoted by two different brokers and is essentially a risk-free form of trading. An arbitrage opportunity arises when a broker who accepts spread bets provide quotes that are significantly higher or lower than the other brokers quote. This enables a trader to take offsetting positions with the two brokers. The final result being the trader’s profit is equal to the difference in the two quote multiplied by the volume of the bet placed.

Eg. A broker quotes the EUR/USD pair at a bid price of 1.2550 and an ask price of 1.2560. While another broker quotes the same pair at a bid price of 1.2580 and an ask price of 1.2590. As there is a difference in the Bid/Ask price of the two brokers, an arbitrage opportunity exists. Since the ask price of the first broker is lower than the bid price of the second broker, the trader can take advantage of this by betting £5 for every pip above the ask price with the first broker. The first trade is offset by betting £5 for every pip below the bid price with the second broker. The final result being that irrespective of the direction in which the currency pair moves in the future, the trader will be able to make a profit of £100 (£5*20pips).

With this trade, the profit is assured irrespective of the direction in which the currency pair moves; it is an extremely safe and risk-free form of investment. However, with the advent of advanced technology, these opportunities are extremely rare to come across and can disappear in a fraction of a second.

2nd February
2015
written by spread bettor

There’s no denying that risk is married to investing; you can’t have one without the other. However, the level of risk varies from strategy to strategy. And in futures trading, risk tends to be quite more substantial.

 

So, you need to be prepared to minimize that risk as much as possible. And the most efficient ways to do that is by utilizing various tools and calculations that help predict future changes in the futures market.

 

One of these tools is the maximum drawdown, and in today’s article, we’re going to cover what it is, how to calculate it, and how it should be used in futures trading.

 

What Does Maximum Drawdown Mean?

 

In order to understand what maximum drawdown (or MDD) means we need to determine first what drawdown (DD) means. A drawdown is a specific period in an investment or fund in which the decline of the peak-to-trough is recorded. (Peak being the absolute highest value and trough being the absolute lowest value.)

 

Therefore, the maximum drawdown is the recorded period in which the portfolio experienced its largest peak-to-trough decline.

 

How Is Maximum Drawdown Calculated?

 

The calculation for finding the percentage of the maximum drawdown is fairly simple. You subtract the lowest value (trough) before the new established highest value (peak) from the peak before the trough, and then divide that difference by the peak before the trough.

 

(Peak value before trough value – trough before the new peak)/peak value before trough value

 

The peaks and troughs terminology tend to complicate things for some. Therefore, I’ve included an example below to give you a better idea of the process of calculating maximum drawdowns works.

 

An Example of Maximum Drawdown

 

Let’s pretend there exists a portfolio that is initially worth $50,000. Now, let’s pretend that over a specific span of time the portfolio experiences the following fluctuations in value, in the following chronological order: $95,000, $35,000, $70,000, $25,000, and finally $125,000.

 

Here are the conclusions that can be made from the preceding information:

 

  • The highest peak of $125,000 will not be included in the calculation for the MDD because the drawdown occurred before that value was established.

 

  • Also, the $70,000 will not be included because its value is not the peak within the drawdown range (even though the value rose from $35,000 to $70,000).

 

  • So, we can now establish that the peak value before the new peak value is $95,000, and the trough value before the new peak value is $25,000.

 

  • Which means the maximum drawdown value would equal: ($95,000-$25,000) / $95,000 = 73.68%

 

How Should Maximum Drawdowns Be Used in Futures Trading?

 

The simple answer is that maximum drawdowns should be used to assess the amount of risk in a portfolio based on a specific strategy. To get a tad more specific, they should be one of the calculations used to help determine your asset allocation over a specific period.

 

Large drawdowns can demolish the funds you need to rebound when better deals are available. Therefore, you need to use both the drawdown and maximum drawdown of a portfolio to try and predict as accurately as possible what type of drawdown you could experience in the future.

 

Risk is always staring us in the face when trading futures, and we need to be as prepared as possible. While maximum drawdown alone is not enough to sufficiently reduce the possibility of risk, it is very powerful when used in combination with other risk aversion tools. Therefore, it should regularly be used.

 

That’s because in the grand scheme of things, the name of the game is capital preservation (especially in a bear market), and the maximum drawdown will ultimately help us achieve it.

9th November
2014
written by spread bettor

In order to start making money from spread betting, you need to open a spread betting account with one of the major spread betting companies.

It is common to thing that one spread betting account is enough, however this assumption is incorrect and even wrong. Financial spread betting companies tend to offer ongoing promotions to keep their players playing. This is a good enough reason to have a few accounts active to enjoy as many promotions as possible.

Opening a spread betting account is easy, all it takes is a few minutes and your details. It’s important to enter your real details when you sign up. If you enter fake details, you may not be able to deposit money and even worse, you won’t be able to withdraw your winnings.

Even if you do manage to open an account, you might be needed to supply documents such as billing documents or a copy of your payment method (credit card) and some time a copy of your ID. This is needed to prevent payment fraud and make sure the person betting is the person paying.

Once you begin playing you might start receiving promotional offers by mail and maybe even be contacted by a personal account manager which will give you tips and offers.

Be sure to open your account with a respectful company. You can read reviews about the company you are registering with, the internet is full of comments about the various online spread betting companies.
You might want to see a license to deal with spread betting (UK only) and in this case you know you are in good hands and most likely to get paid your winnings. In addition you need to make sure the spread betting company has 24/7 support – you wouldn’t want to get stuck with nobody to talk to when you need one.

Don’t be afraid to pay online. Many does it and it’s perfectly secure (look for the lock sign in your browser and you will note that it exist in most betting sites – SSL secure sign). If you don’t want to use your personal payment method online which is perfectly fine, there are other ways such as anonymous pre paid cards or other payment methods such as western union which will keep your identity private and your payment method secured.

To summarize this article – don’t settle for just one account with a spread betting company as you might miss out on great promotions, don’t use fake details and don’t be afraid to use your payment method to pay online.

12th September
2014
written by spread bettor

The word Forex is an acronym for foreign exchange and its trading involves trading between different currencies from different countries by buying and selling them against each other. Therefore, forex trading can involve simultaneous buying and selling of two different currencies such as Euro and US Dollar by buying one of them while selling the other at the same time. Forex trading typically works through a forex broker or market maker, who decides upon a pair of currencies that they expect to experience changes in value and place a trade accordingly.
The forex market can be an extremely treacherous place for the uninitiated and it is better to seek help from other likeminded traders. Therefore, traders gain immensely by forming or becoming members of any pre-existing forex forum, which can provide them with valuable insight and exposure to a broad spectrum of forex traders and methods. These forums can be the ideal platform to discuss the common problems that traders face while doing their business in various different foreign currencies. This platform can also provide their embers with the chance of analyzing the different market trends with the benefit of having more than one head working on the same topic. Therefore, forex traders would be able to see the market trends more clearly and not suffer from a feeling of isolation when things go bad. Traders must remember that if they wish to become successful in their trade then they must forego of the tunnel vision that most of these traders seem to suffer from, and it can cause a lot of problems. Therefore, it is better if the traders find a forum to their liking at the earliest.

The traders would also benefit from becoming a member of any of these forums by learning to read the forex charts properly from any of the more experienced traders. Reading the chart properly may seem complicated at the first glance, but it is nothing more than a scientific way of predicting the likely rate of the different currencies over various timeframes. The timeframe can vary from 1 second to several years with a candlestick, line or bar depicting the price of different currencies. One of the major benefits of learning to read such a chart is to be able to apply technical analysis while conducting trade. Even if technical analysis does not form the primary method of trading, traders can use it successfully to predict the likely changes in prices of various currencies that can help them in making maximum profit. Studying these charts properly can help the traders in making the most profitable forex quotes between the base currency and the quote currency. The quotes consist of two components, the bid price and the ask price with the difference between these two going to the forex brokers as commissions. It is important to be correct on the bid price for the trader to make good profit out of their investment.

The internet is a repository of information and forex traders can opt for forex wiki to gain information regarding their trade. Apart from that, they can also rely upon various news sources for getting an idea about the latest trends in the business. However, getting access to any reliable forex news source can be quite difficult at times with DailyFX.com and FXStreet.com being two quality news sources. Forex traders can also take advantage of the forex calculators available online that provides the current exchange values of almost all the leading currencies in the world. Therefore, traders can very easily find out and do essential calculations needed for making profitable quotes and bids.

4th June
2014
written by trader

A drastic market movement can be either higher or lower, and will follow some major news announcement or event. A good trading strategy is betting that the initial market movement will reverse, therefore, making this a reversal trade.

An example of this type of drastic movement is as follows:

There is an important press conference, after which the FTSE-ALL-SHARE Index quotes are extremely high, however, the prices do not stick, and the market drops back down.

Binary betting on this type of market is an extremely popular strategy, as this kind of market has a tendency to make these types of drastic moves.

We have compiled a list of what are key elements to be successful Binary betting using this strategy.

1. Examine the factors you wish to use to make your decision on the binary bet you will make. Do your research prior to the upcoming figure announcement. Decide if you are going to make an hourly bet or daily bet.

2. Remember the days when these figures are announced; as an example the first Friday of the month is when the United States announces the unemployment figures.

3. Do not follow the news, but watch the markets. When the market makes a sharp significant move quickly, bet the opposite way.

4. Typically a down-bet trade will range from 10 to 20 under, which provides minimal risk, but provides a far greater reward. When the trade goes in your favour the binary bet should settle at 100. If you wish, you are able to sell anytime, prior to the expiration, of the trade.

5. The likelihood of having a successful bet is 65-70 %. Even if the trade loses it is possible to still see a profit. The risk to reward ratio is approximately 5 – 1.

6. Binary bets will always be quoted, and there are many markets that will quote hourly. Binary betting hourly allows trading on a short term basis, but you must be alert and flexible.

Binary betting trades move fast, and you should fully understand how binary bets work. Initially, it is wise to start with minimal positions to minimise your risk.

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