These days “Rolling Spread Bets” have become quite popular and are popular amongst day traders as well as the short term trader. Typically this type of be is open-ended, and will be revalued at the close price each day. This allows the trader to close their bet when they choose. In the even the spread bet is open after close of the trading day, finance charges will be incurred.
Here is an example of what a Rolling Spread Bet would look like for a short term trade.
The JohnStarker* future is trading at 12143 – 12145; you are able to sell at 12143 or buy at 12145.
- We feel the market is going to rise and we will risk £5 per point and buy.
- The market rises, and our speculation was correct, we now close our bet.
- The price quoted at the close is 12193 – 12195.
- We place our sell trade of £5 per point on price 12193.
- To calculate our profit we take our sell price of 12193 less our buy price of 12145. 12193-12145 = 48 points.
- Our profit is therefore 48 x £5 = £240
- We feel the market is going to fall and we will risk £5 per point and sell.
- Our speculation is wrong, and the market rises, and we are going to close the bet to avoid more loss if the market falls further.
- The price quoted at the close is 12193 – 12195.
- We place our buy trade of £5 per point on price 12195.
- To calculate our loss we take our sell price of 12143 and deduct our buy price 12195. 12143-12195 = -52 points.
- Our loss is therefore 52 x £5 = £260
Spread betting on a sector allows the investor to open their position on a sector/market as opposed to taking a position on an individual stock’s performance. This strategy is one way for a trader to gain exposure to a larger area of the underlying stock, and also helps to diversify one’s risk.
Generally the most common sectors are: Mining, Banking, Food and Drug Retailers, Food Producers, Technology, Pharmaceuticals, Mining, Chemicals, Telecommunication, Precious Metals, etc. It is best to check with your spread betting broker to see what sectors they offer.
When spread betting on sectors, one of the most commonly used approaches is fundamental analysis. Similar to stock trading, it is advised that you use the PEG ratio and Price to Earnings Ratios to discover the sectors valuation.
PEG Ratio: This stands for Price Earnings to Growth Ratio. To find the PEG ratio of a given stock you would use the price to earnings ratio and then divide it by taking the stocks’ rate for earnings over a set time period. This fundamental analysis is used to help ascertain the stocks’ /company’s earnings growth. If using the PEG Ratio for sectors spread betting you would be analysing the growth rate and earnings of the sector. This is used often as an indicator of the potential value of the sector.
Price to Earnings Ratio: (PE Ratio) – One of the most common metrics used in fundamental analysis it measures the current stock or sector price relative to what the predicated earnings are for the particular stock or sector.
One should not use this data only to form their predictions, other indicators which should be taken into account would be the evaluation of a comparable ratio in the market. As an example you may compare the sector’s price to earnings ratio to the price to earnings ratio of the FTSE 350 index. By doing so, it may help you to determine if the sector is under or over valued.
Social media is changing the way on how people trade and transact their business. A recent study by the Massachusetts Institutes of Technology revealed that copy trading performs much better than manual trading since the latter proves to be very difficult for those constricted by time. With a lot of new traders exploring their luck in the trading industry. According to the New York Times, regulators have found that approximately 9/10 traders will lose their money on their first major trade. Hence, with the advent of social trading, it will definitely revolutionise the existing scenario.
Utilisting this strategy whilst spread betting provides various benefits. These benefits are basically threefold: first you can capitalise on performance and knowledge of other traders and replicate them even without prior concepts. Secondly, it opens up a dialogue between newbie and expert traders and finally, it brings transparency to what has historically been a very forted industry.
Figures show that 70 % of people who use this strategy through Facebook are those between 18-34 which pretty much are the “Generation Y”. Theirs is a social internet and pretty much not a financial trading experience. The negative implications, however, of social trading is that there is the high risk and real fear of traditional investors regarding a breach of privacy.
The sheep mentality of course is not entirely true in this scenario. If found out that individual traders who trade using this platform earn about 4 % on average on their own. The largest misconception surrounding platforms is that such platforms do not provide professional tools. Basically, what these platform do is offer extensions of what traders already have at their disposal.
Although this platform has significantly changed how responsible people trade, what we actually see is that more people who tend to follow an individual investor the more the former becomes responsible as they follow the ways of a responsible trader.
When it comes to concerns regarding the future of social media trading, much can be said that it will eventually become the mass market form of trading in the near future. Few people trade the active markets at present because they find platforms quite scary at first, and social trading will eventually tear down those boundaries limiting new traders.
Spread betting provides an easy way of profiting from the movement of prices of thousands of markets that include shares, indices and currencies. The possible returns are much higher than traditional brokering accounts for what you basically need is just a small margin deposit to support the positions and the rest resulting profit will be free of tax.
Let us examine the special elements and key steps to be effective in spread betting. We begin by taking a look at how it generally works in collaboration with different services before moving forward with effective risk management schemes. The next stage is geared towards using charts and market analysis to identify opportunities before assessing the available technological advantages through mobile trading platforms before tackling the best educational resources.
1. How spread betting generally works?
Spread betting accounts allow traders to trade in multiple markets which basically means that you can take full advantage of the opportunities whenever it presents itself. A lot of these areas would otherwise be difficult to access to private investors. There is also the added perk that all gains will be relatively tax-free.
Comparing various services
The way in which spread betting providers make a lot of money is thru the difference between purchases and sales which is coined as spread. Whenever a position is opened and closed, traders are required to cross the spread and this is representative of the main cost of the trade. Spreads on the more popular indices such as the Dow Jones and the FTSE 100 tend to begin at an advantageous point, however they are normally more like four points even when they underlying stock market are closed.
2. Searching for great opportunities on the charts
One of the most widely accepted ways of identifying potential good trades is taking a good look at charts. These can highlight the main profitable trends and key resistance and support levels as well as several other potential good price patterns. These data can provide traders helpful insights in making sound decisions by giving them a benchmark on the market is likely to move.
Automating the trading process
The benefit of using automatic trading platforms such as the Advantage Trader platform from City Index is one of the most advance trading interface that includes fully customizable charts with tons of drawing features and variable alert ping features. There are well over 100 built-in trading strategies that can be available for use to automatically trade the markets which you can also personalise.
3. Effective risk management strategy
The risk of having too big of an exposure relative to the cash in your respective accounts is an adverse move that could evidently obliterate your existing unallocated funds. Some providers would have an automatic system that would close your positions if this situation ever happens. It is much better to keep adequate free cash in your account to cover any unforeseeable losses as to avoid being prematurely closed out. Moreover, never risk more than 5 % of your trading capital on a single trade and always diversify positions in the similar approach as you would in an investment portfolio.
Planning your trades
To have consistency in gaining profits from the markets, you need to plan your trades ahead of time. This requires smart and objective approach on where you are clear about why you have opened the position by knowing where you plan to take profits and at which point you intend to close before incurring heavy losses.
Using Stop Losses
All professional traders who are actively engaged in the industry will always advise novice traders that the surest and safest way in limiting severe losses is using stop losses. These are basically standing orders that will automatically close a position if the price move against your trade and hit a certain predefined limit. Moreover, you can also set limit order to take profits in a similar way.
4. Identifying trades using market analysis
Another widely accepted way of being able to identify trades is looking at market analysis. An important economic announcement regarding a specific company can often result in major shifts in price movement. As a result several large spread betting companies include live news feed on their platforms and many publish key analysis of profitable items.
Understanding Client Sentiment
One of the most novel ways of analysing trades is the development of client sentiment indicators. This shows the proportion of clients in a particular market with long positions as well as short ones and the total number of trades involved in the same trading direction.
Utilising Social Media
Over the years the resiliency of the spread betting industry was able to adapt its services in connection of the importance of social media. Twitter, in particular is now an accepted tool of keeping clients updated with all the latest market trends and analysis.
5. Wide choice of educational resources
For those who are new to spread betting or those who want to improve their trading chances, there are plenty of educational resources that can greatly assist you. Most are only available to clients, but should you see something useful from another provider you might want to think about moving your account or opening another one alongside it.
6. Mobile Trading
Most spread betters want an easier access in monitoring their trade account on the go. It is particularly useful for those who are always mobile wherein with just the use of their tablets and smartphones, they can access current trends and activities on their positions. Moreover, the industry has developed a wide array of applications for various smartphones and tablets platforms that allow clients to trade in the same extensive range of markets.
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.