Archive for January, 2012

In the world of financial spread betting, there are many proven strategies and methods used to make a profit. One that has remained intact and often used by very experienced traders is known as arbitrage.

The concept of spread betting arbitrage is that the trader will buy and sell from two different companies, buying at the lower spread bet rate and selling at the higher spread bet rate. This is generally done immediately, to lock in their profit, without having to worry about what the market is doing. To easily understand this method of arbitrage you could take the following situation:

Spread betting firm 1 is offering a spread of 85p-90p on stock TXT, spread betting firm 2 has their spread for stock TXT at 100p-105p. The investor would buy stock TXT from spread betting firm 1, and then immediately sell stock TXT using spread betting firm 2 and lock in their profit.

Each spread betting company sets their own spreads, usually based upon their own opinions and data. If an investor is looking for a profit he should compare various companies, and when the opportunity appears, take full advantage of a quick profit. It is also safe to say that this type of arbitrage does not happen often, and can be a rare occurrence.

Arbitrage spread betting is highly risky and should not be taken lightly. Changes can happen in minutes, so the trader must be careful and follow all industry news and monitor their trade diligently.  It is best to buy and sell almost immediately to avoid high risk.

For any spread better understanding the orders in financial trading is very important. There are quite a number of products that you need orders the common of those including the VWAPs from your MOOs and OCOs among a host of others. The following are orders that can be very helpful in financial spread betting.

Market order – in most case the market order is used to buy or sell assets at the current price in the market.

Limit order – in this order the investor makes it intending to buy the limit price. In these particular cases, investors buy below the limit price or sell above it.

Stop loss order –the stop loss orders is based on selling assets when the market prices drop to a certain level a stop loss order is used to close open potion to caution the investors from losses.

Stop to open order – the stop open order is also called the momentum order and is often the order to buy when the market rise to a certain given level. Unlike a stop close order, the momentum order does not close open positions but actually open closed positions for trade. The orders are determined by the prevailing market movements and often they sell assets when markets are going up and buy them when they are going down.

GTC (Good till cancelled) – the GTC is an on going order until the trader or investor cancels it off.

GFD (Good for the Day) – it is an order that is called off or canceled at the end of that particular trading day.

MOC (market on close) – it is an order to execute any trade at its best during the close mentioned.

MOO (Market on Open) – the vice versa of the MOC and is executed at its best when the trade is opened.

OCO (one cancels the other) – it involves two orders and when one of the two is executed, it often cancels the other in the process.

Fill and kill – it involves high level investments and here, the investor is allowed to get the prices for the whole orders and at the same time he or she has the chance to cancel it or fill it.

VWAP (volume weighted average price) – the orders is worked through out the trading day in a bid to get the daily average of that particular day.

The economy sector is very important when it comes to financial spread betting and there are four key areas which should be taken into consideration when discussing the topic. In the article the focus will be given on these areas all at a time. They include the following;

Liquidity

Liquidity is actually the measure of how fast a financial asset be it a share or a security is sold without huge impact on the prices or the value. Given the fact that liquidity offers a great share of trading activity, it is very suitable both from the organization level and the individual one. Liquidity focuses on converting assets to cash while they are still in the appropriate value and as much as this does apply critically to individual traders, even to companies it is very applicable.

Retail sales

There is no doubt by now that the impact of consumer spending in driving the economy is hugely significant. In many cases what the consumer spend and how much is very key in predicting the direction of the economy and the more the spending is the higher the chances of positive growth. Through the same assumption, market retail sales estimates are very significant in determining the market movements and the impact they have on the sectors that are doing well as well as those that are not.

The Non farm payrolls

Now the non farm payrolls are simply indicators that are used to denote the elementary wage for many industries that exist in a particular setting. The non-farm payroll is used to give a clear cut indication on the number of people who are unemployed or who are not working in paid employment. Furthermore the non-farm payrolls are used to indicate the people who are working, how much they are earning and the number of hours that they work per week. If there is wage inflation in the market, the interest rates will raise and the reverse is definitely true

Interest rates changes and dynamics

The fed funds rate is the standard determinant of interest rates in different sectors or areas of the economy such as mortgage, insurance, government bonds rates and others. In all these areas the fed funds have a very huge impact not just on the US markets but also on others such as the MPC monetary committee policies as well as the European central bank rates. However it is imperatively important to note that  the fed funds in the united states are used as the standard measure of all the interest rates in the world.

Technical analysis or what is popularly known as charting is one of the most obvious and effective ways of trading spot opportunities. As the name does suggest charting involves charts and what a trader does is that he or she directs his or her investment depending on trends portrayed by the charts. The basic technical analysis involved in charting includes the following:

Moving average (MA)

For a technically based trader the moving average is arguably one of the most effective and important tools of analysis. In terms of spot trends and opportunities moving averages are very easy to read and interpret the market and aside from forming the basis of other market indicators and theoretical predictions, the moving average is the most common indicator in predicting trends in the market precisely in high volatile markets. The good thing about the moving average is that it allows the trader to soften the price and volume fluctuations on the basis of very concrete highlighted trends and in fact, this is absolutely verifiable.

Bollinger bands

As noted earlier the moving average is the most significant technical analysis tools but even so, the effectiveness and pin point accuracy of the MA can be assured and guaranteed by putting  bands around them. Financial markets move up and down in trends and quite significantly, the movement is roughly two-thirds of the time. Once you have the bands in place it will be easy to predict trends. For example to know if the market is outstretched, the moving average in question will be out or touching the band.

Relative strength index

The RSI or the relative strength index is quite effective and very relevant to traders. The good thing about the RSI is that it uses a formula to compare upwards and downward trends of prices within a certain and specific time frame. The diversity of the RSI is that, it can be on daily, intraday or even weekly basis but all in all, the technical analysis involved by use of the tool is very accurate. In many cases the 14 period is the most common all be it there are provisions of shorter periods. The range of the indicator is usually 0-100 and readings ranging from 0-30 are actually considered oversold and the price may as well have gone down considerably while readings ranging from 0-70 will indicate an overbought meaning that prices temporary have scaled up quite remarkably.

The techniques involved in all this highlighted tools in technical analysis are very basic and a very good head start for any technical trader. Charting however has a lot of techniques some which are complex and others relatively basic. The essence of technical analysis is the trends and it should be understood that trends in financial markets will never stop.

Support and resistance

When selling and buying becomes hugely significant on a certain price, that is quite a significant barrier on the chart, Just to keep you informed, barriers that prevent prices from going up are called resistance while those that prevents the price from coming down is called support.