Newest Review: ... - if the limit order is activated it also removes the stop order created at the same time very important!! - You could also just place a s... more
I'm spread betting are you?
Spread Betting With Shares
Member Name: mossy51
Spread Betting With Shares
Advantages: Tax free earnings, can make a lot of money!
Disadvantages: If the market goes against your trades you can loose a lot of money!
* Financial Spread Betting *
Spread betting is a way of trading on a financial market (I trade on three european markets) or a product such as a share or a commodity without actually owning the share. As an investor it allows you to bet on whether the price of say a market or commodity will go up or go down in value.
If you think a particular market/share will rise in value then you'd buy into it (this is called going long) and the aim is that you then sell it at a higher price. If however you think the market will fall in value, then you get in there and sell it first (this is called going short), and buy it back at the cheaper price. My husband and most of my friends don't get it (they think I'm a genius and who am I to enlighten them otherwise lol) but it is quite simple once you understand it and I'll give an example of a trade shortly.
Your profit or loss will be the difference between the price at which you buy and the price at which you sell. You don't own the shares when you spread bet you are betting solely on the price movements. You can therefore make a profit from a falling market if you are selling as well as a rising market if you are buying although I have to admit it's much nicer and better for ones conscience when you make a profit from the market value going up!!
* How it works *
For example you are spread betting on the FTSE 100 market (I trade on markets rather than shares of a specific company but it works the same way). For every point the market moves in your favour you win multiples of your stake and for every point it moves against you, you lose multiples of your stake. You can choose the value of a point when you place your order. A point can be worth a minimum of £1 but can obviously be much higher (providing you have sufficient funds for the trade more to come on that shortly).
As I type this the FTSE 100 is at 4213. So say I want to place an order to buy (go long) at £2 a point. I will set my markers (these are your limits of how much you are prepared to lose or gain in this trade) for the purposes of this illustration I'll say I want to make 20 points profit (£40) and I'm only prepared to make a loss of 10 points (£20).
Instrument - FTSE 100
Type - Market
Amount - 2 £/pt (2 pounds a point)
The currently value shows on the screen i.e 4215 (sell price was 4213 buy price is 4215).
Then you select sell or buy - Buy
It asks you to confirm your order by placing it and it's done.
I'd then place another order with my markers so that when the value of the FTSE hits either 4235 my limit price or 4205 my stop price the second order would come into effect and take me out of the trade with either a profit or a loss, hopefully a profit.
Instrument - FTSE 100
Type - OCO (This is an order cancels order - if the limit order is activated it also removes the stop order created at the same time very important!! - You could also just place a stop order so that it will take it out at the maximum loss you are prepared to take and you watch the market yourself and manually sell when the value has gone up sufficiently. The market does fluctuate though so it's in my opinion more risky although it can be fruitful if you're not greedy. If you do this make sure you cancel your stop order when you come out of the trade manually.)
Direction - Sell (I'm buying in this example so when the value of the market hits my markers I want it to bring me out of the buy trade by selling it back either for more or less money than I bought in to the market for).
Amount - 2 £/pt
Limit price - 4235
Stop price - 4205
Duration - GTC (I use this function which means good till cancelled. This order will run until it's activated unless I chose to close it early).
Then you just confirm your order by placing it and it's done and will come into effect when the market value (or share value as applicable) hits one of the markers.
You can also place GSO orders (guaranteed stop order) which as the name suggests will guarantee to stop your trade at the stop price limit. This means if you left a trade going over night and then when the markets opened in the morning it had gapped significantly (i.e it was 4208 when the market closed but when it opened it opened at 4190 well below your stop price) instead of loosing a lot more than you were prepared to before the stop price order could be activated the GSO would sell the shares at the original stop price so you wouldn't loose all that extra money but this does cost extra to set up and a GSO order can not be placed in the last hour of trading. There may also be a ratio percentage of the value of the market which calculates your minimum stop price which may be more than you are prepared to loose when using this function, on the positive side if the market gaps in your favour you end up earning more than you set out to!!
As you can see if my trade hit my limit price marker another order would come in effect and sell my trade back for £2 a point. I'd therefore have made £40. If I had traded at £5 a point I'd have made £100 but could have lost £50 and so on. The value you set your point at in any trade is dependent on how much funds you have available in your trading account and how much money you're prepared to loose and what you would consider a worth while trade to make a profit on.
Funds in your account is obviously necessary when your trading. When you have a trade running your actual available funds will be lower as there will be an amount put aside for your margin.
Spread betting is a leveraged product which means that you only have to put up a percentage of your total exposure to the market this figure will show as your margin.
For example I've currently got a trade running on a German Cash market. I'm selling (going short) at £2 a point with a limit marker of 60 points, a stop marker in this instance of 30 points. My margin amount for this trade is £80 (which is 40 points).
It will cost you a different amount to buy into the market/shares than to sell and this difference is the commission/fee that the brokers make, various markets will have different prices. For example the FTSE 100 was at 4213 this will be the sell price to buy price was actually 4215.
* My experience *
I work full time from home managing a trading plan for a client on three European markets. Obviously I can't go into details of his plan as that would be unprofessional he has spent a long time working it out and half a year paper trading before he approached me to trade for him.
There are lots of ways and means to trade over the phone, online, a package on your computer (which is what I run) and you can also have bets set up automatically but my client wanted someone to watch the market all day which is what I do.
I start work at 8am and finish when two out of the three markets I trade on close at 4.30pm. Part of the plan I follow is to review what the markets do every 10 minutes and based on what has happened I'll either put in an order for a trade or do nothing. (That's why I have time to sit and write reviews in between trading or wash up, iron, read etc obviously I'm actually on dooyoo reading reviews lol).
Obviously I get paid to sit here all day and watch the markets. If you are doing it for yourself you will need to consider how and when you'd trade, do you have the time to sit and stare at your computer all day and watch the markets or would another option be more suitable.
This last month has been quite turbulent at times. On Friday I made over 400 points in profit but yesterday I lost 150 points. Personally I've found from the plan I'm following that we start off with a pot of funds it goes up a bit then down a lot then back up a lot and at the end of last month we ended up pretty much in the same position. This is partly caused by the markets yo-yoing up and down so my limit (profit) markers never quite hit before I change the trade...very frustrating!
Of course your experience may well be different as it will depend on your own plan, the markets or companies you spread bet on etc.
You can make a profit and the more money you have in your funds account the more money you can make a point worth. For instance say our plan is to trade at £3 a point but in a years time we would be able to trade at £5 then £10 a point so you can rapidly earn lots of money but obviously loose lots as well. A trade I carry out today at £3 a point might be worth £120 but if in a years time trading at £10 a point it would be worth £400.
I normally average from around 4 trades up to 15 trades a day across the three markets I watch, this is very dependent on the market though and there are no obvious times that you'll place a trade or patterns of when your trade will hit it's markers.
* If you're thinking of spread betting *
Research your markets. Once you've found a market your interested in watch it and I'd recommend paper trading it for a while to see how it runs what its average rises and falls are. If a market never rises much above 40 points before it changes again (they go up and down all the time) then there's no point setting a limit marker of 100 points as it will rarely hit it unless you are in for the long haul. I trade on a day to day basis so want a quick turn around in trades.
Paper trading is where you follow the market and write down (or put on a spreadsheet) what trades you would have done and then you can see if you'd have made a profit or a loss. It's a very good way to get to grips with the market and how it behaves (although they can be unpredictable and erratic especially in the current climate). This will also help give you an idea of realistic profit and loss markers to aim for.
If you are seriously interested in having a punt a spread betting then there are courses, books, magazines and seminars available to help you understand spread betting and work out your own trading strategy.
For instances CMC Markets offers free seminars and webinars to help you learn about spread-betting. I also recently saw on their website that they would give you the opportunity of having a free days trading on one of the FTSE markets any losses you make they'd cover and any profit you make you get to keep, (I think it was no more than £2 a point value on trades though)!!! Unfortunately I can't seem to find it on their site now but if you are able to find this generous offer or a similar one with another company I'd advise you take them up on the offer once you've learnt more about spread betting so that you don't waste the opportunity.
* Finally *
Don't bet with money you can't afford to loose!
This review is meant as an overview and introduction to spread betting. If you've found it interesting and think it may be for you I recommend you investigate it further before you start trading.
There are many ways to trade and brokers to use. CMC Markets has a great web trading platform as well as one that is installed on your computer (which I use as it gives even more analytical tools although it only works on windows so I have to boot camp my mac book to use it..oh the shame of it!!). I have found CMC Markets to be very friendly and helpful over the phone as well as having a very usable trading platform but I have only used them and there are other companies providing similar services out there.
I could go on and on but that would take forever and no one would read the review as it would be too long lol!!!
Here is a list of companies that you may find helpful.
Summary: Spread betting can make you money but do it informed, remember it is ineffect betting so be wise!!