Spread betting

markmh

hello all

i have been looking at trading stock/shares as a bit of a hobby/medium term investment however the amount i can invest is minimal £50-£100 per month and given the commissions/stamp duty and other costs i could only really go for the cheaper AIM shares and even then would need the shares to increase by 30%-40% to make anything so i have been looking at spread betting.


It seems straight forward and with stop losses relatively risk free. i was wondering if anyone has any experience with spread betting and could recommend any sites.

thanks

mark

Aegis

It's far from risk free. Bear in mind that you're trading on margin, so any price movements are magnified. As such, if you start out with £250 in your account, you can put a tight stop loss onto a trade to limit yourself to, say, £50 loss, but the problem you have there is that the random fluctuations can then trigger your stop loss quickly and you're down 20%. Set a wider stop loss and you run the risk of being down even further.

If you're using it to buy into a stock as though you had £1,000 to invest now, then as long as you calculate the margin right it's no more risky than buying that amount of that stock, however bear in mind that you can then potentially lose more than you have in the account.

Definitely don't think of this as relatively risk free!

blinko

spread betting allows you to increase your exposure while reducing your capital laydown.

But you really need several £k to get started

to be honest £100 per month isn't going to be enough.

you can get exposure on the FTSE 100 for 1pp and maybe try and build it up, but you will get wiped out quickly.

I suggest build up a bigger capital base and then try it out.

but its good to start off small and the mistakes are cheaper.

EdGasket

98% of spread bet accounts make a loss ! (Why do you think there are so many offers to open accounts?) To say it is relatively 'risk-free' tells me that you haven't a clue and in no way should touch spread-betting. Why not instead open an x-o S&S ISA and you can trade for £5.95 a share tax free making it cost effective to buy just a few hundred pounds worth of shares?

Sceptic001

EdGasket wrote: »

98% of spread bet accounts make a loss !

Do you have a source for that, or is it just an opinion? Logic would suggest that, on average (allowing for the spread) you have a slightly less than even chance of making a profit on spread betting.

I agree that spread betting would be entirely inappropriate for OP's circumstances.

blinko

Sceptic001 wrote: »

Do you have a source for that, or is it just an opinion? Logic would suggest that, on average (allowing for the spread) you have a slightly less than even chance of making a profit on spread betting.

I agree that spread betting would be entirely inappropriate for OP's circumstances.

I think he is talking about FX which I woudl totally avoid, spread betting and investing directly your exposure will be the same if managed correctly

Jegersmart

Yes, I think the OP says "risk free due to stops" because he needs to see for himself how a leveraged trade behaves. Money management is even more critical than getting the price direction right imho.

I would (and do) use CFD's rather than SB - I don't want to have to fight the vendor as well as the market in order to make profit.

To the OP, the best advice I can give you is to set up a free "practice" account with someone like IG Markets and try some trades to see how you get on and more importantly how your leveraged positions react to market movement so you can judge (and see) the risk for yourself.

Good luck!

EdGasket

Sceptic001 wrote: »

Do you have a source for that, or is it just an opinion? Logic would suggest that, on average (allowing for the spread) you have a slightly less than even chance of making a profit on spread betting.

I agree that spread betting would be entirely inappropriate for OP's circumstances.

http://www.timesonline.co.uk/tol/money/investment/article6072968.ece

This article suggests 80% of accounts lose; I have seen 98% somewhere but a newbie is likely to be among the 80% anyway. The problem is that spread betting is not investing; it is short-term gambling and if you have on average half wins and half losses, you lose 2 times the spread on every pair.
The OP saying that stop-losses make it 'risk free' is nonsense. I'll tell you what happens if you set a stop loss: Open bet>check price some time later and it appears not to have moved>check your bet and find out you have been 'stopped out'>query this with the spread bet company and they tell you the price dipped, they closed your bet and then the price recovered> happens all the time, as the spread-bet company is the market maker they can dip the price for a short time to stop people out and make themselves a fortune.
I imagine the successful spread bet accounts use long dated bets to arbitrage with the real market and don't use stop losses.

blinko

EdGasket wrote: »

http://www.timesonline.co.uk/tol/money/investment/article6072968.ece

This article suggests 80% of accounts lose; I have seen 98% somewhere but a newbie is likely to be among the 80% anyway. The problem is that spread betting is not investing; it is short-term gambling and if you have on average half wins and half losses, you lose 2 times the spread on every pair.
The OP saying that stop-losses make it 'risk free' is nonsense. I'll tell you what happens if you set a stop loss: Open bet>check price some time later and it appears not to have moved>check your bet and find out you have been 'stopped out'>query this with the spread bet company and they tell you the price dipped, they closed your bet and then the price recovered> happens all the time, as the spread-bet company is the market maker they can dip the price for a short time to stop people out and make themselves a fortune.
I imagine the successful spread bet accounts use long dated bets to arbitrage with the real market and don't use stop losses.

There is no difference in your exposure with spread betting and normal investing.

eg investing £6000 in the FTSE 100 or spread betting £1pp on the FTSE 100.

you pay a little more on the spread but this allows you to get the leverage

cepheus

There is a lot of rubbish talked about spread betting. Equivalent trades to buying and selling shares can be acheived through spread betting. In the present low interest climate those equivalent trades are usually cheaper than holding the shares as I have previously shown.

What is dangerous is not spread betting as such but frequent trading, since your losses can quickly accumulate, it's just that they will accumulate even faster by buying and selling shares at the same rate, due to additional costs!

If you choose to bet more than the equity your own then this is obviously risky simply because your exposure is higher, but this is simply an option available through spread betting, it isn't compulsory! Be aware, very high risk trades can be attained through normal share dealing via penny shares which are rarely available through spread betting.

Hence the moral is don't frequently trade through ANY means without doing extensive research, but if you do then spread betting is the way to do it!

Ark_Welder

blinko wrote: »

There is no difference in your exposure with spread betting and normal investing.

eg investing £6000 in the FTSE 100 or spread betting £1pp on the FTSE 100.

you pay a little more on the spread but this allows you to get the leverage

You quote the word that shows the difference between a spread bet and normal share dealing: leverage.

Maximum loss with share investing is 100%. Maximum loss on a long equivalent trade spread bet is 900% [edit] of the size of the bet. A reason why the bet needs to be covered.