Believe it or not, there really are some seriously wealthy traders that have hit the mint by spread betting the financial markets. Normal, everyday people, just like you and me. Hopefully this beginners spread betting guide will help you get started too.
No one knows the exact figure of successful traders, but it is estimated that it is around 10 % of the total traders who actually make a long term regular profits from financial spread betting.
Obviously there are always more losers in the stock market than there are winners, that’s what makes it work; and that is exactly the same with financial spread betting. It’s that 10% that hoover up all the foolish and unfortunately ill informed traders money.
The Beginners Spread Betting Guide
When it comes to anything in life there is rarely a holy grail that solves the problem that you are trying to. What works for one person does not mean it will do so for another.
When it comes to spread betting the markets the same can be said. What works well for one trader may not suit another. So there is no one particular Holy Grail system that is going to show you the way to millions in profit in a month from now.
There is neither any system that wins 100% of the time, not even close. It’s far from anything like that.
If you only won 20% of your trades you could and can still make astounding profits. That statistic is more like reality.
The best winning system I have ever seen in action is the actual trader that handles the emotions of trading and can wait without making irrational trading decisions. This is often regardless of what system is being used. It is these traders that you may read about that have become wealthy not from being smarter than you but just from doing the basics well… over and over again.
This guide is intended to highlight those basics of spread betting so you can confidently move on and approach spread betting the financial markets with realistic expectations.
What is Spread Betting?
Spread is different to traditional betting. When you place a normal bet of any type, the majority of the time you are saying that there will be a winning outcome [or draw]. If using betting exchanges like betfair or betdaq you can also bet that you think the outcome will be negative… bet to lose or laying this is called.
When placing a spread bet though things differ because you are essentially saying that something is going to win or lose by its price rising or falling over a duration of time.
Unlike fixed odds betting, your profits are made from spread betting by exactly how correct your prediction was/is. In essence the more right you are the more your profits rise. The more wrong you are the more your profits fall.
This image will make things clearer
So if we are right and our spread bet goes in the right direction we are able to keep making profits the longer we are correct.
Another way to explain spread betting is going long, means that you will make money for every point the market you are trading moves up/rises. Or going short, meaning you will make money for every point the market goes down.
This is what trading the spread looks like on binary.com
What can I spread bet on?
Depending on what financial spread betting firm you use, more or less anything that moves. Indices, commodities, individual stocks, currency, bonds, sectors and now ETF’s
Having such an array of trading opportunities at the click of a button can cause confusion to be honest. I think it’s better to find one area and stay with it. This way you’ll learn to trade the chosen market effectively without getting distracted and diluting your attention.
How much do I need to start trading?
Nowadays and also fortunately not very much. You can open an account at finspreads and be trading with a couple of hundred quid. You can also get a demo account to practice with first.
The most important thing to consider when opening a real money trading account is this, are your expectations realistic? Don’t get carried away with the possibilities of becoming rich overnight. Like anything in life, you need experience to get better. The first step is to try and not lose money and go from there.
Here’s a list of the most trusted spread betting companies in the UK.
There are more and more companies popping up all the time but the first 3 on the list have been around for a long time and are the market leaders.
How do I start trading?
Trading is very emotional when you start out; it takes a long time to become an unflinching seasoned professional.
It’s far more important to practice first and determine what type of trader you are before deciding on your trading system or strategy.
This is one of the biggest hurdles in trading that gets overlooked. You might like the idea of becoming a trader and have already bought your system or books from Amazon and be raring to go, but go where? You have no idea if you’re going to be cut out for this yet.
The best advice I can give you is find out what is going to agree with your personality. Are you likely to get bored trading long term trends over months and even years? Is the idea of fast paced action like swing trading and day trading already giving you a headache?
There’s no point in trying to be a day trader if you’re far more suited to the longer term, 5 minutes a day to check your position approach. And vice versa, don’t try long term trading if you are someone that needs to be active in the markets.
Margin on your spread betting account is just the deposit or minimum account balance to keep your trade open. Most spread betting firms have a margin level indicator and also a calculator so that you can test out the margins before you place a trade.
If you open a trade and you find it goes against you and you do don’t have enough funds in your account to cover the margin, you’ll often find that the spread bet company will close your position without warning.
Obviously this is to cover their own liability and not a personally swipe at you. Be sure to check this and make sure you understand it fully if in any doubt. You can read more here at city index.
What is the best strategy to use spread betting?
That’s a bit like asking what the best dog is. There is no one strategy that suits all. As you know I have had great success trading Vince Stanziones system. It’s longer term and suits me. Although there are quite a few of Vince’s trades that last only a few weeks, but that may still be to long for some of you.
If you’re looking for something that fits both styles you should try my free system… you can get it here. It’s trend trading in nature but also offers the chance to trade much shorter term movements as well.
If you’re looking for rocket quick cash and profits then you’re going to have to search hard to find what will work. I get lots of these so called get rich quick systems emailed to me… I’ve yet to recommend one.
In saying that, if this guy can make money day trading then I’m sure you can too.
I’m currently looking into developing a short term trading system that you will be able to use on Binary.com and also the other main spread betting companies. So watch this space.
Different types of trading strategies
Swing trading is a shorter term trading style that relies on trading the retractions off of the support and resistance levels. Swing trading can last from around 15 minutes to a week.
These figures are somewhat vague as everyone will have their own ideas and time frames of swing trading but as a rule you rarely enter swing trades for monthly time frames. It is normaly day to a week.
As mentioned, trend trading is trading the longer term trends that the market is indicating. Moving averages are a regular tool [amongst others] for long term trend traders. These trades can last, weeks, months and years.
Long term trend trading is generally open and leave, you normally check your positions once a day [if that]
You can see in this image of British American Tobacco that there has been a steady and continuous up trend that has lasted for the last 16 years. You could have taken profits out along the way if you wanted to.
In this example you could even buy the stock instead of spread betting at around 3.22 in 2000. So let’s say you bought 1000 shares = £3220 that means at todays date [May 2016] they’d be worth £42000.
This is outstanding returns. Also this is a typical type of trade using Vince Stanziones system. You can of course spread bet this position too.
This method of trading requires you to be in and out the market very quickly and to result in making small profits from a trade consistently. These trades are often open for only seconds at a time.
End of Day trading EOD
I like this idea as it can fit in around people that work in the day. The signals for this style of trading are given in the morning and are left open until the close at the end of the day.
It saves the stress of having to trade all day and it also can reward you with good profits. The general idea again is trend trading, letting your profits run and cutting your losses quick.
This idea suits many because even though there is only one trade a day, if you are spread betting that does not mean 1 point a day. You can win many ticks and this can easily outperform other day trading strategies.
How to place a spread bet.
It is not at all difficult to place a financial spread bet. Once you have speculated on which way the market is going to go you simply choose your desired time window and hit the long or short button.
As you can see from the image beneath, the long and short prices are different. It is this difference in prices that is referred to the spread. The spread is how the spread betting company makes their profit on your trades.
You can see from the image that the long price is 44202.71 and the short price is 44182.71 this is obviously a 20 point/tick difference or a 10 point spread in each direction.
So when you first open a trade you will probably notice that you are in a negative position. This negative position is just the spread that the spread betting company are charging you. Once your position starts moving into profit you know that the spread [bookmaker’s fee] has been paid and that anything you make from here on in is profit.
Closing a trade
To close a trade you are simply buying or selling the same position in the opposite direction.
Stop loss orders
Stop losses can be a great tool for protecting your trading bank should the market go against you. You can use a standard stop loss when opening a trade or a guaranteed stop loss.
The standard stop loss is activated at the best available price depending on market movements.
So if you bought the FTSE at 6000 and your stop loss was set at 5800 the order will come into effect as close to this price as possible.
However sometimes the market makes erratic movements and your stop loss may not get triggered until 5795. So you have paid an additional 5 points. This additional 5 points is known as slippage.
Guaranteed stop loss
A guaranteed stop loss is just that… Your stop loss will be activated at the price you set. There is a premium charge for using a guaranteed stop loss and this is added to your spread.
A trailing stop can be added to your position so that when your trade moves into profit you can lock in profits as it moves along. This can be a great strategy in clear trending markets.
When you open a spread bet it is always for a certain time and date in the future. This is called the expiry date.
You need to check when your expiry date is of the contract/position you are opening. If you do not know this information you will find that your trade has been sold and ended on the expiry date. This will be regardless as to whether your trade is in profit or not.
To counteract this you can add automatic rollovers to your positions. Doing so will keep your trades open until you decide to close them or you are stopped out.
Also you’ll find it is cheaper to use the automatic rollover feature at your spread betting firm than it is to manually keep reopening your position. This is because rollover spreads receive a discount on the spread that you’d normally pay.
Spread betting analysis
Whatever you decide to place your first spread bet on, at some stage you’d have done some homework on why you think your bet is going to go up or down.
This is simply referred to analysis and is separated into either technical analysis or fundamental analysis.
Technical analysis is done by using all information available that the price of the market you are looking at is offering. All information is gathered from the price charts. An example of technical analysis is using simple moving averages, MACD, Bollinger bands, candles, Elliot wave, Fibonacci and EMA.
Fundamental analysis does not involve using technical indicators [although they can be combined]. Fundamental analysis is done by factoring in rather more external events like, earnings reports, elections, company splits and so on.
You then make an informed decision on what way you think the market is going to go after reacting to the anticipated news.
There are so many areas of trading and countless volumes of agreeable and conflicting information that it is impossible for anyone to cover everything in a blog post.
Hopefully you will gain a clear insight into beginning spread betting from this guide and from here you can move onto more in-depth study if required.
- Remember spread betting does not have to be complicated to be profitable. Learn to trade by doing the simple things right over and over.
- Decide on what type of trading will suit you? Do you want to be busy every day [day trading] or be a far more long term trader?
- Start small; you’ve got the rest of your life to make it big.
- Start with one strategy and stay with it until mastered or you realise that the style truly does not suit you.
- Cut your losses
- Let profits run