Spread betting

Sceptic001

EdGasket wrote: »

Here's another link showing SB losers to be around the 80% mark (not quite the 98% I originally quoted but still enough to make your chances of coming out ahead extremely thin):

http://www.lse.co.uk/blogs/expert/naked-trader-blog/lsi3kg/

Quote: 'More than 90% of Day-Traders lose for a start. And the figure for those who don't trade that much is still over 70%.'
I rest my case.

That is a far more balanced article than the shoddy Times effort, written by someone who clearly knows what they are talking about. Well worth a read for anyone thinking about spread-betting.

cepheus

Sceptic001 wrote: »

That is a far more balanced article than the shoddy Times effort, written by someone who clearly knows what they are talking about. Well worth a read for anyone thinking about spread-betting.

Well it is a good article, and there are some excellent tips there. However, the main reason for 70% loss rate is poor position sizing and overtrading rather than spread betting per se. Obviously you will lose potentially more if you bet more money, that goes without saying.

Spread betting is simply a more cost effective method of trading. Whether trading itself is cost effective, is something completely different. The answer is no for most people.

cepheus

Do they offer spread betting? They do Contracts for Difference which is similar. This can offer even better value than spread betting depending on the account details.

CFDs are mainly used by more larger more experienced clients. IGIndex also offer these.

sabretoothtigger

Whether trading itself is cost effective, is something completely different. The answer is no for most people.

Best to invest via unit trusts on a regular basis not one off. Any other option is risky and spreadbet often involves absolute loss of funds.

The only thing I saw recently that looked good was the SG92 structured product (a fancy FTSE tracker) but its offered by SocGen bank who DailyMail insists are on their last legs. True or not, it is something that would be of zero worth at worst where as unit trusts are much closer to actual savings

chrismac1

In my view, anyone considering spread betting should start with something which is nothing to do with markets, charts etc. - Google Kelly criterion. Set yourself up a spreadsheet which operates a half-Kelly staking system, you can graduate to full Kelly after 2 years of profits!

Stick to the spreadsheet rigidly and you will never go bankrupt. Never. Why ? Because that is one of the tenets of the Kelly staking system. It takes iron discipline. After nine losing rugby matches on the bounce my stake was a fraction of what it was before that run began, likewise I've had runs on the financial markets which reduced my staking levels by 50%. But if you have a winning method these staking reductions GUARANTEE you will make profits in the long term. It is a mathematical certainty, and I have a Maths degree to back up this statement.

This method also enables you to test out other people's systems at minimal cost. Let's say £500 is what your maximuim desired lifetime loss is on a system before you accept it is pants. Fine, set your initial stake and stop loss accordingly - say for £50 or less max. loss on that bet. If it wins, the next stake might have max. loss £55 or £60. If it loses it will be £50, £45, £40, £30 and so on until the £500 is gone.

If you read my post on the short on gold, you'll see another method of risk minimisation. You build into a big position gradually as it moves in your favour, following Dow Theory in my case. So if gold rallies next week to say 1760 then looks like it is selling off again, I'll consider doubling my position size.

I use this on my long term buy and hold stuff too. I have never averaged down but frequently averaged up, I averaged up in Diageo on Thursday. I first bought this share at around 640, then again at around 900, then again on Thursday at a higher price again. I don't hold many stocks, so between them Diageo and Synergy currently account for nearly 30% of my portfolio. And I ruthlessly cut losing shares which go down through my stop losses - set using Dow Theory - so no one share ever costs me more than 30%.

Back in my early days before this rule I had 2 shares which went to zero. Never again!

cepheus

Alternatively, if you have an underwriter you could try the Investment bank technique. The method is place your stakes ridiculously high, since if you win great, if you lose it becomes someone elses problem.

In fact most business have a version of this method, since bankrupcy avoids enormous negative debt! That's why the spread betting firms insist you on having sufficient margin.

experience08

chrismac1 wrote: »

Google Kelly criterion. Set yourself up a spreadsheet which operates a half-Kelly staking system, you can graduate to full Kelly after 2 years of profits!

I'll have a read. Thanks

cepheus

Problem is, that Kelly's criterion and similar staking systems are too theoretical. You never know the probability of success. You might be able to get an indication from your trading history, but market characteristics change. Whatever, staking system you choose you will lose unless you have an edge. Make sure you have a positive expection that is the odds x probability of success is well in excess of 50%.

That said, staking in proportion to your 'pot' is a sensible option, as is increasing your bet as the price moves in your favour whilst the stops are moved up. Markets move through brief periods of non random movement, identifying these trends, and maximising gains during these periods is the key to success.

blinko

The reason i am down in spreadbetting is because i take priofits too quickly and let losses run too long. I look back and think how stupid I am.

If you are new to investing spread betting I recommend doing small stakes eg £1pp etc, it will save you alot of money in the long run

for the me the main advantages of spread betting is leverage and tax free gains other than that its just a fancy way of getting exposure to whatever share/asset you want

chrismac1

This week I will be placing my first bets without spreads with Worldspreads platinum account - £5k minimum blaance required. I don't expect zero spreads to make that much difference to my performance. Compared to most people I am successful at it but I don't have the mastery of it I had of sports betting so continue to play it safe. I always apply a stop loss on every trade - often a trailing stop loss - and never move it if the trade turns sour for any reason.

When a trade makes a target profit, I move my stop to break-even. Ideally I want the market to move back near my new stop then break down again - after all I placed my original trade because I felt the market was trending in my direction. Okay so we now have a new baseline where the market has established either a lower high (short position) or higher low (long position) . Time to consider doubling up on the bet. My maximum position doing this was 8 units in one market, massive profit for a very limited risk at any point in time. You must be patient, your first goal is at least to break even over an extended period - so you have at least proved to yourself you can defend your capital.