Spread betting

CB27

I was asked by a friend about spreadbetting and which companies are best, and though I'm happy with mine I said to visit this site to see if there's a good breakdown of some companies he can choose from, and I saw this thread.

I have to say I'm slightly disappointed with the replies given, with the thread going off into a "spreadbetting is good/bad" kind of discussion.

The OP suggests they have £50-£100 per month to invest. The first thing I'd ask is to make sure this is money you can afford to put away before considering anything, any self investment is risky with small amounts because you can't spread the risk.

Secondly, before giving up on shares altogether you may want to consider the following:

The amounts you mention are sufficient for an investment club, you can join others and pool both your money and your knowledge together and enjoy an excuse for a monthly get together.

Another option is something called sharebuilding, which some dealers offer, which allows you to build up your portfolio for about £1.50-£2.50 a trade, letting you buy small amounts. Even if you have plenty of money to invest in normal shares, these kind of accounts can be useful for high yield and penny shares.

Once all that's out of the way, you then asked about spreadbetting.

People can talk about different strategies, but nothing is 100% effective, it's about what you're comfortable with. Most spreadbetting companies allow you to have a demo account, why not spend some time on them to work out which strategy you're most comfortable with?

By spending some time with the demo, let your capital grow for a few months. It's all very well being able to place a bet with as little as £50 in your account, but the moment this trade goes just slightly against you then you're stuck. You need to leverage yourself.

I'd personally say avoid trading live, but that's because I'm not comfortable watching the markets. My own strategy is to look in 2-3 times a day and based on what's happening I'll put in a number of orders and when they're trigerred my trade goes through. Doing this I've had trades that opened and closed with over 100 points profit in a matter of minutes, which I know I'd have closed too early if I'd been watching the swing.

Stick to what you're comfortable with. Sometimes the markets you usually trade are a bit quiet and it's tempting to look elsewhere because they look like they're on the move. This can be a big mistake.

Use stop losses, but don't be too tight, this is where leverage is absolutely necessary. You need to consider what you think will be a resistance point for the market you're trading. There are always bulls and bears however good or bad a market is, so if you're betting in one direction, don't put such a tight stop loss which will kick in because of momentary resistance. Technical traders will look at the movement of the market and find points where they think there is resistance, if that point is broken there is a possibility that the price will continue in that direction for a while. This is when you put an order in to ride the swing, and put in a stop loss to avoid losing too much.

Good luck

MoneySaverLog

One tip I would add when looking at support and resistance, look at the ratios, set your entry and exit points at the start of your trade. Look to make at least 2/1 that is twice as much as you could potentially lose if you get stopped out. Ideally 3 or more is best. but no less than 2/1.

Lost loads spreadbetting in the past, more than I would care to admit. So personally I'm out of this game.

blinko

as far as I am converend you should be wary of spread betting as its a bit more advanced than just buying shares

but the basics are there is no difference between your exposure if you invested

£1000 in a share that cost 500p or you simply did 2pp at 500p

CB27

A quick point about the exposure difference between shares and spreadbetting.

There is a different mentality to the two because of the entry level, and this is often ignored when comparing the exposure to the two.

Take the following example:

ABC PLC is 400p per share. If you buy 5,000 shares (ignoring tax and charges), your layout is £20,000. A 5% increase (20p) will give you £1,000.

A 5% movement is 20 pips, therefore you're looking at a position of £50 per point to get £1,000. If the margin is £100 per £1, you need £5,000 to be able to get this trade.

Looks like the exposure in spreadbetting is less, doesn't it? However, there is one very important point that's often overlooked.

Simply because you can have a lower exposure in spreadbetting doesn't mean you'll use that lower exposure. If you had £20,000 to trade on shares, and now decided to use spreadbetting instead, will you limit your exposure to only £5,000? The big mistake many traders do is that they expose all or most of their £20,000, and it's difficult to stop yourself from doing so until you get the experience and discipline behind you. If the price drops 5%, if you're trading shares then you lose £1,000, but if you used that £20,000 in spreadbetting that same movement means a loss of £4,000.

MoneySaverLog

It's called leverage, and if the trade went against you they will make a margin call. Without a guaranteed stop loss you are risking more than your initial deposit with spreadbetting, the share price could effectively go all the way down to zero.

If that ever happens, overnight for example when markets are closed, you're in deep s**t the next morning as you'll find your account wiped out and end up having to pay the spreadbetting company further monies owed to cover that position.

mallard76

mallard76 wrote: »

Hello there, I'm considering singing up to worldspreads. Would you be interested in splitting the proceeds and how ?

The only thing that bothers me is whether I'll qualify for £300 cashback if I'm referred. Can you check and pm me ?

For anyone interested, I signed up to world spreads with referral from sabretoothtigger. It all went fine and I qualified for £300 cashback as well. Easy money !