Stay at home mum - could I be a day trader?

padington

peterg1965 wrote: »

so the Share needs to rise by 0.9% before you are into Profit (this includes the £9.95 to sell).

Why are you paying a commission and capital gains tax when you could spread bet and not ?

elwy

kittie & peterg: Thanks for your encouragement, your posts have been very insightful and helpful :T

gadgetmind & wrigly: thanks for the links, I will defo be reading and researching all I can!

I don't know an awful lot about spreadbetting but I'm guessing it's a lot riskier than regular trading?

superhanzzz77

peterg1965 wrote: »

- Do not sell for a loss, even if it take months to recoup losses - not necessarily a hard and fast 'rule' this one.

totally disagree with this one

I think you have to be able accept a loss - respect your stops admit that you made a bad choice and move on to a different stock that is performing well.

Why hold on to a stock that is performing badly when there are other stocks that are performing well.

Sounds like an emotional trading decision to me - trying to avoid losing money for psychological reasons - clinging on to a losing stock will most often result in your losses getting worse

If a stock isn't acting well I sell it

simple

you can always buy it back if it's behaviour changes

lvader

superhanzzz77 wrote: »

totally disagree with this one

I think you have to be able accept a loss - respect your stops admit that you made a bad choice and move on to a different stock that is performing well.

Why hold on to a stock that is performing badly when there are other stocks that are performing well.

Sounds like an emotional trading decision to me - trying to avoid losing money for psychological reasons - clinging on to a losing stock will most often result in your losses getting worse

If a stock isn't acting well I sell it

simple

you can always buy it back if it's behaviour changes

You need to understand why a stock is doing badly, is it a temporary issue or is it in terminal decline? Chasing good performing stocks and always selling when it drops a certain amount is a sure way to lose money.

aple333

elwy wrote: »

kittie & peterg: Thanks for your encouragement, your posts have been very insightful and helpful :T

gadgetmind & wrigly: thanks for the links, I will defo be reading and researching all I can!

I don't know an awful lot about spreadbetting but I'm guessing it's a lot riskier than regular trading?

You are right in saying spreadbetting is lot riskier.I have both share dealing and spreadbetting account.My account got wiped out (around 15k) in a matter of months in the spreadbetting.

padington

aple333 wrote: »

You are right in saying spreadbetting is lot riskier.I have both share dealing and spreadbetting account.My account got wiped out (around 15k) in a matter of months in the spreadbetting.

what did you bet on out of interest ?

aple333

padington wrote: »

what did you bet on out of interest ?

I was making money on trading commodities .As i was stupidly overconfident i went to trade other markets.One of the trades went horribly wrong.I bet around £45 CADJPY (83) long in Feb end .(usually CADJPY pair will be bullish when the oil price increases).After the earthquake CADJPY decreased to around 78 in a single day, decrease of 600pips in a short time and my account got wiped out.Now CADJPY is trading at 88.

dtsazza

elwy wrote: »

I don't know an awful lot about spreadbetting but I'm guessing it's a lot riskier than regular trading?

Usually spread betting involves trading on margin, with a degree of leverage.

The leverage aspect in particular means that if you're making money, you can get better returns on your initial investment. Let's say you have £1000 to invest, and you want to invest in a company that's going to increase in price 8% in the next few days. Going the traditional approach of buying physical shares, you'll buy for £1000, sell for £1080 to make an £80 profit (all ignoring commissions/taxes) - unsurprisingly the 8% return on your assets matches the change in the stock price. If you were spread betting at 10x leverage, then the £1000 stake would give you a "virtual" £10,000 investment in the company. Here the 8% increase would yield £800 profit (again ignoring deductions) - 8 * 10 = 80% return on assets.

However, if the stock price instead fell by 8%, you'd be left with £920 in the shares case, but only £200 when spread betting at 10x leverage. If prices fell 15%, you'd have £850 left in the former case, but would have -£500 (i.e. owe the spread betting company £500) in the latter.

In practice you'd be unlikely to end up owing the spread betting company money as they'll likely impose guaranteed stop losses for retail investors before you get to that point. While this is good in one respect, it does mean that, especially in volatile markets, the fluctuations are much more likely to hit your stop loss and automatically close your position at a loss.

"Spread betting can result in losses that exceed your initial deposit." Your wins are magnified, but so are your losses. And since all random walks hit £0 eventually, at which point you stop, spread betting can be a very quick way to lose all of your investment pot unless you're consistently making good calls, and the bad calls are closed out very quickly.

peterg1965

dtsazza wrote: »

Usually spread betting involves trading on margin, with a degree of leverage.

The leverage aspect in particular means that if you're making money, you can get better returns on your initial investment. Let's say you have £1000 to invest, and you want to invest in a company that's going to increase in price 8% in the next few days. Going the traditional approach of buying physical shares, you'll buy for £1000, sell for £1080 to make an £80 profit (all ignoring commissions/taxes) - unsurprisingly the 8% return on your assets matches the change in the stock price. If you were spread betting at 10x leverage, then the £1000 stake would give you a "virtual" £10,000 investment in the company. Here the 8% increase would yield £800 profit (again ignoring deductions) - 8 * 10 = 80% return on assets.

However, if the stock price instead fell by 8%, you'd be left with £920 in the shares case, but only £200 when spread betting at 10x leverage. If prices fell 15%, you'd have £850 left in the former case, but would have -£500 (i.e. owe the spread betting company £500) in the latter.

In practice you'd be unlikely to end up owing the spread betting company money as they'll likely impose guaranteed stop losses for retail investors before you get to that point. While this is good in one respect, it does mean that, especially in volatile markets, the fluctuations are much more likely to hit your stop loss and automatically close your position at a loss.

"Spread betting can result in losses that exceed your initial deposit." Your wins are magnified, but so are your losses. And since all random walks hit £0 eventually, at which point you stop, spread betting can be a very quick way to lose all of your investment pot unless you're consistently making good calls, and the bad calls are closed out very quickly.

Thank you, you have just explained why I don't do spread betting!

MMM...Money

elwy wrote: »

kittie & peterg: Thanks for your encouragement, your posts have been very insightful and helpful :T

gadgetmind & wrigly: thanks for the links, I will defo be reading and researching all I can!

I don't know an awful lot about spreadbetting but I'm guessing it's a lot riskier than regular trading?

Hi Elwy,

Spread betting does carry a greater level of risk then regular share dealing because it's a leveraged product. Basically you only need a fraction of the amount (say 10%) of capital that you would need to buy regular shares. For instance you want to buy 1000 shares in BP. Currently around 450p per share so would cost you around £4500 plus dealing fees to trade BP in a regular share dealing account. If you wanted to buy BP in a spread betting account it's a little different. Spread betting works in £ per point. In this case 1000 shares equates to £10 per point. (£1 per point 100 shares, £10 per point = 1000 shares and so on). Therefore if you were to buy BP at 450p and it goes up to say 460p you've made 10 points profit so £10 x 10 points = £100 profit. If you wanted to exit the trade there you sell at 460p make £100 profit and all of it is yours to keep. There's not tax to pay on profits as spread betting is currently covered under gambling laws in the UK.

If you were to do the same in a regular share dealing account you need to pay fees to buy the shares, fees to sell the shares, possibly stamp duty on the trade and capital gains tax on any profits you make over a certain threshold.

I personally think spread betting actually has benefits over regular share dealing. These are smaller transaction costs on smaller trades. Spread betting transaction charges are all covered in the bid ask spread of the share price. The only other consideration is overnight financing charges if you trade daily bets. These can be eliminated if you trade quarterly bets but the bid ask spread is slightly larger.

With spread betting there is something called a stop loss order. This basically is applied to a trade that you make and will exit your trade for you should the price you set it at get hit. I don't think many brokerage firms offer automated stop loss orders such as this so that's another benefit of spread betting. Regular stops are free of charge but you'll have to pay a little extra to use a guaranteed stop.

Obviously I'm a fan of spread betting. I actively spread bet myself and write about my exploits in my spread betting blog. If you want to start trading I would suggest either trade in a demo account first and failing that start small. I personally only risk 1% of my total funds on each trade I make but for a new comer such as yourself I would start lower than that say 0.5% or 0.25%.

Anyway I could go on and on about this. I hope this may have helped you in some way.

Harry,
The Spread Betting Beginner.