Posts Tagged ‘spread betting’
Financial spread betting on small cap shares carries an exceptional mix of reward and risk. This is basically due to the wide spreads and extreme volatility on the small cap quoted shares (caps £1,000,000) within the FTSE and Alternative Investment Market. A few guidelines to follow if you wish to spread bet on these small cap shares is outlined below.
If you do wish to spread bet small cap shares, please keep in mind that buying and selling quickly could be risky, due to the smaller trading volumes. Quite often these share prices tend to move at a much slower pace, and you may have a tougher time trying to exit these trades quickly. Liquidity in this type of market is generally can cause havoc in the trade. Also to note that with narrower spreads, brokers tend to require much higher margins.
It is without doubt important to follow current news channels, as both good and bad news tends to be the main influencer’s in prices changes on small cap shares. Where most spread bettors will be able to use analysis and technical data for their indicators on prices movements on larger shares, small cap shares are not influenced in the same manner.
Small cap shares through the AIM are quoted though Market Makers using the market maker system. Spread betters should watch for wider spreads. Wider spreads indicate larger price movements, and that is what is needed to profit from spread better. Generally, less market makers and smaller liquidity on individual stocks will result in much wider spreads, and provide a route for more profit.
If you wish to use stop loss options to minimise your risk exposure, you must use extreme caution so you do not accidentally get ‘stopped-out’. Alternative Investment Market (AIM) shares tend to be vulnerable to high levels of volatility, with that said, it can be a good thing if you are on the correct side of the trade. Placing your stop losses correctly requires one to carefully examine their position. If the stop loss are placed incorrectly, or too close to the buy / sell price, they can easily be stopped-out. To add to this gapping can occur if the price movements fluctuate too quickly and the spread betting broker is not able to initiate the stop loss order at the spread betters price.
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.
Among the most common aspects that many traders overlook, when it comes to financial spread betting, is managing their money or finances. This is because of them are focusing too much in making the best technical analysis in order to come up with the best strategy. Aside from that, there are also some who are just too pre-occupied in monitoring whatever is happening in the market. Hence, their tendency is to take for granted this aspect.
However, this is extremely surprising. This is considering that the end goal of financial spread betting is for traders to profit and earn money. The sad part here is that most of the traders do not even pay enough attention to their trading accounts. This is also true to their wide financial conditions. Nevertheless, this flaw in the behaviour of most traders does not give an excuse at all to tolerate this. It is still advisable for all traders to balance and weigh their finances by having a sensible and scientific trading approach. This is because doing this is extremely significant in anyone’s success.
Cash as the Lifeblood of Trading
In spread betting, as well as in the other forms of financial transaction or trading, cash is always the lifeblood of it. Without this, drying up a trader’s earnings is the sure end of it all. This is especially during the hype of so many losing trades. Even when the other traders are the ones having a constant lost on their trades, it does not mean that the winning side does not have to worry about it at all. As a matter of fact, this is a caution or warning that all traders should be more vigilant and responsible in using their money.
Spread Betting as Highly Leveraged
We all know that spread betting is a highly leverage transaction that works in both direction. In other words, what this means is that while one trader may win a certain amount in a position, on the one hand, the same trader may also quickly lose around the same amount, on the other hand. This is another reason why all traders must undoubtedly be extremely serious in putting how much one can afford for a single transaction or position.
One of the areas where traders and investor can spread bet is on currencies. As a matter of fact, most traders consider this as the biggest and widest market the many people all over the world trades in terms of volume. The pace of currency and foreign exchange markets is also remarkably fast and volatile, which makes investors use it for hedging, speculative trading and other forms of investment. In this regard, when they combine this with spread betting, the trading model becomes more vigorous and livelier with more actions.
There are two (2) general and different spread markets for currencies. These are the spot market and through the quarterly bets. Most businesses engage into the spot market because of its innate short term nature. Some people also refer to this as the cash market.
Spot Market for Spread Betting Currencies
On the one hand, spot currencies are commonly the rates that traders will see while watching or reading the news from their television, newspaper of internet sites. Most spread betters trade these currencies because of the tightest bid-offer spreads. However, the tightness of these will still depend on what traders call as the currency cross as well as its level of popularity. The said currency crosses can be in different groups. Some examples of these crosses are the following:
- Major currency crosses – these include EUR/CHF, EUR/USD as well as USD/JPY
- Minor – GBP/JPY and EUR/CAD
- Australasian – AUD/EUR and NZD/CHF
- Scandinavians – EUR/DKK and USD/NOK
- Exotics – USD/Polish Zloty.
Quarterly Bets for Currency Spread Betting
In a general sense, there are at least two (2) quarterly bets that this market has to offer. For instance, if the current month is January, then what this means is that there will be quotes for March and June.
With the foregoing, the decisions in determining which market to trade are in the hands of the traders and investors. The rules are almost the same for these types of spread betting. Nevertheless, mixing this up with some strategies and models may help a trader to find the right one to choose. For instance, if a trader is going for a short term model of trading, then the Spot market is more advisable in case of holding a position that is under seven days.
Dow Jones, Wall Street and S&P are all among the several instruments that are very appealing to many investors when it comes to spread betting. This is because these are included in the most popular and watched after instruments in the financial trading. Aside from that, all of these have their own advantages and features that made them really alluring for this kind of transaction. These will be discussed one by one in the section below.
Firstly, the Dow Jones, which is the short name to refer to Dow Jones & Company, is one of the most popular publishing and financial information companies in the United States. In the field of spread betting and other financial transactions, this can refer to the index of the different top US stocks that are being traded. There are several platforms where you can trade as well as engage in spread betting for the Dow Jones like in the Spreadex nd GFT.
Among the many advantages of spread betting Dow Jones is that an investor can enjoy several free perks from it. For instance, one can have a Demo Account that can be used for free. In this platform, a newbie investor can practice to spread bet while still learning how the market works. Aside from that, there are also some countries that allow the transaction from this kind to be free from tax. One of the many countries that implement this is the United Kingdom. Furthermore, there several platforms that an investor can explore in order to enjoy zero commission fees like in the City Index, GFT, IG Index as well as in TradeFair.
On the other hand, if an investor is quite new in this world of financial transaction, the Wall Street is just another term that is being used in order to refer the spread betting of the Dow Jones. As a matter of fact, most investors call the market for different instruments like the Dow Jones or Dow as the Wall Street.
Thirdly and lastly, but not the least, the S&P spread betting refers to the stocks being traded from the Standards & Poor. This is among the most popular and famous financial companies that is based in the United States as well. One of their most popular instruments is the S&P500. This instrument represents the index of 500 biggest or largest companies and firms in the country. Aside from that, this is also considered as one of the most comprehensive markets in the said country.