Financial Spread Betting: a beginners guide

scooter74

Hi,

I'm looking to try and get into spread betting. I got interested becuase I found some software www.invest4y.com which claims to give indicators of which way the markets are going.
However the software is complicated and American based and doesn't relate very well to the kind of markets used in spread betting.

Does anyone know:

Any indicator software, paid or free, that's any good.
Any books that are good for getting a guide on how to financial spread bet.
Any general adivce for spread betting?

Thanks.

monkeydust_2

for a quick one pager intro to spreadbetting look at here also join https://www.trade2win.co.uk and check out the introductory guides.

Book you must read (there are tonnes but this one is the bible): Dr elders "Come into my trading room"....i know the title sounds like it could be a dodgy !!!!!! flick buts its a MUST read for anyone starting out in trading. Remember spread betting is trading.

deemy2004

Money Managment & Trader Psychology is how you win at trading be it spot, futures or spread betting.

A good trader can make money using ANY tool - EVEN a coin toss

As i demontrated on moneytec.com (currency board) during Sept to Oct 04... Really a coin toss is just as good as all the indicators in the world !

So don't waste your life away getting hooked on the lastest indicator or system or TA tool, as its money management and trader psychology is what you need to focus on !

cheerfulcat

scooter74 wrote:

Hi,

I'm looking to try and get into spread betting. I got interested becuase I found some software www.invest4y.com which claims to give indicators of which way the markets are going.
However the software is complicated and American based and doesn't relate very well to the kind of markets used in spread betting.

Does anyone know:

Any indicator software, paid or free, that's any good.
Any books that are good for getting a guide on how to financial spread bet.
Any general adivce for spread betting?

Thanks.

Hi, scooter,

Firstly, be aware that spread betting is not investing or even trading; it is gambling, and leveraged ( using money you don't have ) gambling at that. You are more likely to lose than to win, and you can lose a lot more than your original stake. It is not recommended as a way of making money.

Furthermore, you need a sound knowledge of stock market investing before you even contemplate betting on it; technical analysis ( what the "indicator" software usually employs ) is useless without fundamental analysis. (Actually, I suspect that it may be useless anyway :-) but because so many people use it, it can become a bit of a self-fulfilling prophecy.)

Finally, if you want to know a bit more about the nuts and bolts, there's a short course here -

http://www.incademy.com/training/Spread-betting/Introduction/1085/10002/

complete with reading list.

HTH

Cheerfulcat

monkeydust_2

cheerfulcat wrote:

Hi, scooter,

Firstly, be aware that spread betting is not investing or even trading; it is gambling, and leveraged ( using money you don't have ) gambling at that. You are more likely to lose than to win, and you can lose a lot more than your original stake. It is not recommended as a way of making money.

Furthermore, you need a sound knowledge of stock market investing before you even contemplate betting on it; technical analysis ( what the "indicator" software usually employs ) is useless without fundamental analysis. (Actually, I suspect that it may be useless anyway :-) but because so many people use it, it can become a bit of a self-fulfilling prophecy.)

Finally, if you want to know a bit more about the nuts and bolts, there's a short course here -

http://www.incademy.com/training/Spread-betting/Introduction/1085/10002/

complete with reading list.

HTH

Cheerfulcat

Spreadbetting is not trading - utter rubbish - its a mechanism to trade and a very good one given that there are no tax implications (at the moment) it also allows you to trade instrument you can not through a traditional broker e.g. Coffee / Gold / Carbon Emissions ...

cheerfulcat

monkeydust wrote:

Spreadbetting is not trading - utter rubbish - its a mechanism to trade and a very good one given that there are no tax implications (at the moment) it also allows you to trade instrument you can not through a traditional broker e.g. Coffee / Gold / Carbon Emissions ...

Hello, monkeydust,

A spreadbettor has no rights or obligations regarding the underlying; the market will be unaffected by the bet. As the spreadbettor does not participate in the market he or she cannot by any stretch of the imagination be considered a trader. You are *not* trading coffee, gold or carbon emissions; you are taking a punt on their prices, which is a different thing entirely.

The favorable tax treatment should show you that HMRC does not consider it trading either - if they did, they'd whack you for CGT.

Tim_L

There are some decent introductory offers for spreadbetting companies if you hunt around. I'm currently running a 1 week free spread bet on Vodafone (and doing feebly badly...), and there are also offers of free bets and account credits.

As far as financial spreadbetting itself goes, it is an excellent way of providing tax free investments without necessarily needing capital. As an example, you can simulate quite closely the returns of a tracker ISA by betting on the FTSE index without needing to fund an account with any more than the amount of money you can afford to lose (i.e the margin). You don't get dividends, but apart from that the performance is quite similar, and of course you can profit equally easily from a falling market as a rising one. You can of course trade into and out of particular indexes or shares very easily and without stamp duty or other charges.

It is possible to open a deposit account and set guaranteed stop losses so that your exposure is pretty well controlled. I don't hold with the argument that this is "gambling", except in the sense that conventional investment is, and it's certainly not the case that you will inevitably lose more than you will win, any more than you would inevitably lose more than you gain using a tracker ISA.

Also it's worth noting that many of the companies offering spreadbets underwrite the bets with actual trades in the underlying market.

I've been learning the ropes with financial spreadbets recently, and there are some very useful tricks you can play. For example if you have one of those (awful) 5 year guaranteed capital bonds and you are a few years in and want to lock in your gains, you can set up a spreadbet that will win money if the underlying indexes fall (and of course lose if they gain). What you lose from the 5 year bond you will win on the spreadbet and vice versa so the investment will tread water until it comes to term. Similarly you can lock currency rates if you are considering buying a property abroad.

As soon as you get out of the mentality that this is gambling and hence the inevitable road to ruin and disaster, financial spreadbetting does start to look like an extremely useful investment tool.

As with all investments, you shouldn't risk more than you can afford to lose, and you should get clued up about the underlying investment or index. And you also need to be very clear about how spreadbetting works and what your liabilities are (for example not all stop losses are guaranteed: you can lose more than you have deposited and spreadbetting debts, unlike fixed odds gambling debts, are recoverable in law). Most if not all financial spreadbetting firms are registered with the FSA.

PS: just to explain why there is a difference between financial spreadbetting and sports betting (for example fixed odds), with sports betting you are taking a punt on a specific event with a specific duration. As a rule once the bet is placed you can't change it. Whereas with financial spreadbetting you have the same basic indefinite period as you would have with a normal investment. You can choose when to end the bet. This is a simplification, because even fixed odds bets can be hedged in-running under certain circumstances, and most spread bets have some sort of underlying duration, but it gives the general idea.

monkeydust_2

cheerfulcat wrote:

Hello, monkeydust,

A spreadbettor has no rights or obligations regarding the underlying; the market will be unaffected by the bet. As the spreadbettor does not participate in the market he or she cannot by any stretch of the imagination be considered a trader. You are *not* trading coffee, gold or carbon emissions; you are taking a punt on their prices, which is a different thing entirely.

The favorable tax treatment should show you that HMRC does not consider it trading either - if they did, they'd whack you for CGT.

Have to disagree with you here - think you might be thinking of investing vs trading rather than what is trading. Firstly the price of instruments quoted on the spreadbetting markets mirrors the underlying - this is no coincidence! Also remember that typically these brokers (e.g. IG Index) hedge themselves on positions in the underlying - if you bet is large enough - I mean very large on an illquid stock the underlying WILL move the market as a result of the hedge. In fact the argument here is that Trading is effectivley Betting right - wher you take a given level of risk onboard for an expected return...

cheerfulcat

monkeydust wrote:

Have to disagree with you here - think you might be thinking of investing vs trading rather than what is trading.

Nope; deffo thinking investing/trading vs spreadbetting :-). I think we'll have to agree to disagree though. Didn't mean to tread on toes or get up noses, apols if I did.

BTW, I wouldn't want to discourage anyone from even the riskiest bet, if their circumstances are suitable ( no debt, reasonably reliable income and so on ). I just think that the OP, and anyone else interested in SBing, should be *aware* of the risks.

scooter74

monkeydust wrote:

for a quick one pager intro to spreadbetting look at here also join https://www.trade2win.co.uk and check out the introductory guides.

Book you must read (there are tonnes but this one is the bible): Dr elders "Come into my trading room"....i know the title sounds like it could be a dodgy !!!!!! flick buts its a MUST read for anyone starting out in trading. Remember spread betting is trading.

I hardly want to interrupt this thread now it's in full swing but just to say thanks. Following some advice on the chatboard link above am already up £30 on my demo account at Capital Spreads. Not bad on two one pound bets. I've still got a hell of a lot to learn and it was losing money until a couple of hours ago but this thread is great after hours of scanning the internet for good advice. Have read all the other links as well and it seems to me combining with some of the tips on the chatboards with a good hard look at underlying trends on the charts you can have some limited "luck" for the gambling camp, or "success" to those saying SB is investing! :beer: PLease keep the advice coming. What are the best markets, best time of day to invest. Can you trade in short periods, ie two-three hours etc.

Tim_L

Possibly worth just explaining what spreadbetting is for anyone who doesn't know. You take something that has a measurable number attached to it, for example the value of a share - let's take as an example a value of 151p. This is taken as a 'mid price', and two prices are generated, a lower 'sell' price and a higher 'buy' price, for example at 150 and 152. The difference between the two prices is a spread that provides a margin for the bookmaker.

You then either buy or sell at a price per point. For example you might buy at £1 per point at a price of 152. If the value of the share goes up 5p, you win the bet and will make £5, i.e. you make a profit of (current price - buy price)* stake. Note that this is exactly the same as the profit you would make if you bought 100 shares for 152p, but you have not had to spend the £152 pounds in capital, nor do you need to pay dealing fees or stamp duty.

On the other hand if the share went down 10p in value, you would lose £10, i.e. the difference between the current and buy price multiplied by your stake. Again this is the same amount as you would have lost if you actually owned the shares.

If the share had done a Marconi and lost 95% of it's value, you could potentially lose a great deal of money. However there are two sorts of stop losses (these also stop gains) so that you automatically end the bet when the index or share value has dropped by a number of points, for example 5 points. The first, most normal, type stops the loss as close as possible to the stop point, but you have increased risk if the price collapses instantly by more than your loss limit - for example if the share price went directly from 152 to 138 because of bad news or something you would be liable for the full loss of (152-138)*stake even if you'd set a stop loss of 5. You can avoid this using guaranteed stop losses which are paid for by a slightly worse buy price.

You can also use the lower 'sell' price. This works in reverse so if the share or index falls you win the difference multiplied by your stake, and if it rises you lose. This is like traditional 'short selling' except easier to set up and without the need to cover positions.

So I think it's clear that this is very much like any sort of investment in stocks and shares, but with a few advantages because you don't have outlay capital to obtain the gains (or losses!). But you absolutely do have to understand the risks: it is not easy money, and you have to know what you are doing.