Spread Betting Guide

In today’s economic state, many former spread betters are taking to binary betting.  Binary betting offers a regulated form of risk, whilst still allowing the trader to make profits in volatile markets.  Binary betting allows the trader to know up front how much they will profit as well as how much their maximum loss will be in the event the market moves unfavourably.

The binary bet consists of either one of two outcomes.  No matter how little or how high the movements are the trade will receive either a 0 or 100. Binary betting is a fixed odds instrument wherein the trader does not have to worry if the market moves are 3 or 300.

The broker will provide the trader the odds, which they have set utilising their expectations of what the particular market movements will do.  The actual spread which is given is reflects the maximum profit as well as the maximum loss the trader will receive.

Paul Fraiser a spokesman from IndependentInvestor.co.uk explained in further detail, “A binary bet is an actual true of false statement, if the event proves false; it is given 0 points, if it proves true 100 points will be awarded.”

As an example, let us say that the binary bet is on the statement that Company DEF will close the day higher than the day prior. The price given between 22-32. The trader feels this state will be true and buys in at 25 and £3 per point.  That day Company DEF closes higher then the day prior.  The bet is given 100.  The trader then is awarded (100 – 25) x £3 = £225.   In the event the outcome is not in your favour, you will be charged 25 x £3 = £75.

This working example shows that at the time of placing the bet, you will know upfront of your maximum gains, or maximum loss.  Naturally there are further sections and options available to the trader.

The four main types of Binary Bets are as follows:
1.    Daily down bet
2.    Daily up bet
3.    Hourly down bet
4.    Hourly up bet

Markets are constantly being quoted, therefore profits and or loss can be taken at any given time.

Five of the top options that one can undertake when it comes to financial spread betting and CFD trading strategies are the long call, long straddle, bear put spread, covered call and the bull put spread strategies. These are also applications for options trading as well as share dealing. So, what do these strategies tell us?

Long Call Option Trading

On the one hand, the long call options trading refer to the strategy that involves the buying call option wherein the outlook for trading is what they call as the bullish. This means that the expectation must be that the prices of stocks will rise. The advantage of this is that the trader will be able to enjoy unlimited potential profits without worrying about too much risk.

Long Straddle Options

On the other hand, the long straddle option is another special strategy in options trading. Wherein the position is long but it requires the investor to purchase both the call option as well as the put option of different derivatives. One can make profit from this kind in the CFD trading, for instance, if the prices of the underlying instruments move a long way relative to the strike price.

Bear Put Spread Strategy

Furthermore, the bear put spread is another strategy in share dealing and options trading that is being used when the trader is assuming that the price of the underlying assets will most likely go down in the near future. What this means is that the period is not a long period, but not a short term as well. Aside from that, another things that you must learn about the bear put spread strategy is that this is being done by buying a put option with a higher striking and then you will sell it for a lower striking put option under the similar expiration date.

Covered Call

Another strategy in options trading is the covered call. Unlike the first three mentioned above, this one is a kind of call option that is written relative to the holding of an underlying stock or security. This is being done in order to get or earn premium writing calls as well as enjoy the benefits of underlying stocks.

Bull Put Spread

Lastly, the bull put spread is the opposite of the bear put spread in share dealing. This is because, in here, the prices of the underlying assets being traded are expected to go up gradually in the coming days or months. The period is also medium term instead of either short or long.

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.