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Spread Betting Glossary
Spread Betting Spread betting is a tax-free method of speculating on the future movements of many financial instruments, such as stock prices, commodity prices and indices such as the FTSE 100 or Nasdaq. Unlike traditional share ownership, you can speculate and profit from movements both upwards and downwards in prices, while never actually holding the shares. Read more...
Stop-Losses Due to the volatility of some markets, a stop-loss is recommended for many types of bets. This is a level at which the bet will be automatically closed if the market moves against you. Often these levels may be subject to some 'slippage' if the market moves particularly quickly, and it is not possible for the spread-betting company to close the position in the market. Read more...
Trailing Stops A trailing stop is a moving stop that follows the price of an instrument, ensuring that any sudden movement does not wipe out profits already made - effectively locking in profits. Read more...
Leverage Leverage is a term used for trading on 'margin' or borrowed funds. Read more...
Hedging A common use for spread betting is to hedge (offset risk) in an existing portfolio. Read more...
Diary of a Spread Better: Consider our ongoing thoughts and experiences within the world of spread betting.
I'm no millionaire trader, so the pro's may want to look elsewhere for their tips, but maybe some of my mistakes and experiences may help one or two people out there out there, and it would be good to share thoughts via the comments.
I’ve enjoyed a punt on and off for a few years now, sometime successfully, and sometime disastrously. I think that I have learnt from many of my mistakes, and hope one day to become consistently profitable.
I remember when my naïve eyes first discovered spread betting; it appeared to me to offer an easy way of making money. It only required a small stake, which could be placed with a stop-loss, and offered unlimited profits if the bet went the right way. How could you lose?
I was quite wrong. – Unfortunately it does take some work, and a little luck can be good thing too!
The spread better needs to know exactly what they are up against, of which there are 3.
The perfect market
The spread betting company
Everyone else
The first thing we need to understand is the perfect market theorem.
The perfect market theorem suggests that at any one time, the price of a share, commodity etc reflect all that is known about it at that time, by all participants in the market. It reflects not only its current worth, but also the participants’ future expectations.
In a perfect market, it is not possible to predict the future movements, as only an unknown factor can change the price. It could equally be up or down.
The perfect market theorem is often seen in action before a company releases a profit warning. If the profit warning was widely expected due to market conditions, the price will already have dropped prior to the warning – In line with it’s expected worth after the expected news.
If you believe the perfect market theorem, it’s probably best to give up on spread betting now, as you accept the mathematical probability that you will win 50% of your bets, lose 50%, and also lose the providers spread each and every time. This would not be a good way to make money.
If however, you believe the market acts irrationally at times (and I don’t think we need to look much further than the dot.com bubble or our current housing market for proof of that), and you can spot that mispricing, then spread betting may be for you.
Next up is the spread betting provider. Don’t get me wrong, they’re not your enemy, but they do need to make money. As a novice, you’ll probably swear blind they’ve ripped you off from time to time – such as when a trade cannot be executed in a timely manner, or when the platform craps out on you, or a trade mysteriously ‘slips’ a few points. In my experience, spread betting is not well suited for scalping (opening and closing positions in a very short space of time, to make a quick profits on a small movement) due to these sometime questionable slips. More of that later.
Finally, it’s also worth remembering when spread betting that for ever winner, there is a loser. For every bet you win, someone, somewhere has lost. So you need to be smarter than the other guy.
To sum up...IF:
- You don’t believe the perfect market theorem
- You can live with a little frustration from time to time
- You are better at predicting than 50% of other traders.
Spread betting is for you…
Introductory Offers to Kick-Start your Trading Profits
Capital Spreads offer a wide variety of bets on Financial Products which include: Indices, Shares (UK & US), Currencies (FX), Commodities (Metals, Oils & Coffee etc), Interest Rates and Bonds. You can bet on the Future, Cash (which expire at the end of each day) and Rolling Daily products.
Capital Spreads really strive to keep their spreads permanently tight to give you more room for profit - Extremely competitive and most are found to be better value than most of their competitors thus giving you more opportunity to win.
Whether you're a full time professional or just starting out, it’s all about making the most of the market.
City Index, a market leading provider of spread betting and contracts for difference (CFD) trading, will help you do that with a clear, simple service designed to help you make your investment decisions.
IG Index is Britain's leading financial spread betting firm, offering prices in a huge range of indices, currencies, commodities and options, as well as thousands of individual shares. Financial spread betting has grown exponentially in the last decade because it offers traders and investors a unique combination of flexibility, speed of execution and tax-free profits.
Cantor Index is a leading financial spread betting company. Cantor Index offers spread bets on a wide range of markets from shares and indices to bonds and commodities. It has unrivalled customer services and a state of the art online betting platform, as well as a free charting package and huge resource center.
