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Monday, August 15, 2016
Spread Betting Account
Spreadbetting can yield high profits, if the bets are placed correctly. (Related:
WhatIs Spread Betting?) Most successful spread betting traders follow a
systematic trading plan created through sufficient experience and knowledge.
The icing on the cake comes from spread betting profits being tax-free in
countries such as the UK. Yet, only a small percentage of spread bettors are successful. Why does a
majority fail, and only a few succeed? Investopedia looks at the following
important points for success and profitability for spread betting.
Spread betting is illegal in the US, although it is legal and very popular in European countries, particularly in the UK.
Trading Tighter Spread Securities
Assume a stock is trading at 300 pence. But due to its illiquid nature, a wider bid and ask spread of 290–310 pence is available (see Bid-Ask Spreaddefinition). With a bullish view, one can buy at 310. Once in, in order to profit he needs to find a buyer who can purchase at a much higher price. If the stock makes a 3.33% jump from the current 300 to 310, it is still a no-profit scenario for the trader due to wider spreads.
Instead, if there is a similar priced but highly liquid stock trading at 300 pence and with a tighter spread of 298–302, then buying at 302 and closing at 310 will offer significant gains. Spread betting on tight spread instruments improves the profitability significantly.
Building a Structured Trading Plan
How much total trading capital is available? How much money will be used per spread bet? How frequently will spread bets be placed? Answers to such questions help create an efficient trading plan. Having GBP 50,000 and blowing away GBP 25,000 on a first bet will leave you at a significant loss. With the remaining GBP 25,000, you need to gain 100% profit just to recover your lost money. The profitability of spread betting can be improved substantially when one enters with a clearly-defined spread betting plan, which is based on total capital, bet amount per sequential bet, and frequency of placing the bets.
Structuring the Bet Entry and Exit
On an average, Ami makes 4 winning trades out of 5, while Ben makes 1 winning trade out of 5. Whose trades are more profitable?
The common answer will be Ami, but it may be incorrect. Structuring the bets properly can allow one to be profitable in the long run even with a lower number of winning trades.
With GBP 10 per winning bet, GBP 50 per losing bet and 4/5 = 80% success rate, Ami effectively makes (0.8*GBP 10–0.2*GBP 50) = –GBP 2 loss.
With GBP 50 per winning bet, GBP 10 per losing bet and 1/5 = 20% success rate, Ben effectively makes (0.2*GBP 50–0.8*GBP 10) = +GBP 2 profit.
The key to the game is placing the bets right, with the right amount depending upon success percentage. Losing small multiple times and gaining big a lesser number of times can compensate for any losses, if trades are structured properly.
Right Market and Right Instrument Selection
A UK-based spread betting firm like CityIndex offers spread betting across 12,000 established global markets, with asset classes including stocks, indices, forex, commodities, metals, bonds, options, interest rates, and sectors.
Most novices tend to simultaneously play around in multiple markets and securities without a clear understanding. One should build expertise in a few asset classes. Attempting to generalize will lead to mounting losses.
Prepare, Plan, and Practice Before Entry
Most spread betting firms offer a free practice demo account with virtual currency. Learn the tricks of the trade, backtest the structured betting plan, and practice it multiple times before jumping in with real money. Markets will remain forever, but real money lost during an initial phase of ignorant and inexperienced attempts will be difficult to recover.
Once comfortable with virtual returns, enter with real money but start small and then expand as the betting profits increase.
Controlled Use of Leverage
Spread betting is available on leverage, which magnifies profit (and loss) exposure despite limited capital. With GBP 100, a 10% leverage margin can allow one to make bets for up to GBP 1,000, while a 1% margin allows exposure up to GBP 10,000. Leverage is a double-edged sword—it magnifies the profits when a bet works favorably, but also the losses if it goes wrong. Successful spread bettors use leverage efficiently with tight controls to their benefits, while novices get tempted to take large positions and end up losing more than they have. Controlling the leverage usage, based on realistic availability of the capital amount, is necessary for success in spread betting.
Factor in the Tax Benefits
While devising a trading plan, or while comparing performance from different trading activities, it is important to factor in the tax benefits available in spread betting. This is a very significant factor to making genuine profits.
The Bottom Line
Spread betting, though illegal in the U.S., is very popular in the U.K. and European countries. It offers high profit potential, but most traders lose out during the initial entry phase due to ignorance and inexperience. (Related: Whatare the biggest risks involved with financial spread betting?) Building sufficient knowledge, selecting the right instruments to spread bet, and practicing and backtesting the system based on the outlined points can assist in generating profits from spread betting.
Read more: Investopedia
Spread betting is illegal in the US, although it is legal and very popular in European countries, particularly in the UK.
Trading Tighter Spread Securities
Assume a stock is trading at 300 pence. But due to its illiquid nature, a wider bid and ask spread of 290–310 pence is available (see Bid-Ask Spreaddefinition). With a bullish view, one can buy at 310. Once in, in order to profit he needs to find a buyer who can purchase at a much higher price. If the stock makes a 3.33% jump from the current 300 to 310, it is still a no-profit scenario for the trader due to wider spreads.
Instead, if there is a similar priced but highly liquid stock trading at 300 pence and with a tighter spread of 298–302, then buying at 302 and closing at 310 will offer significant gains. Spread betting on tight spread instruments improves the profitability significantly.
Building a Structured Trading Plan
How much total trading capital is available? How much money will be used per spread bet? How frequently will spread bets be placed? Answers to such questions help create an efficient trading plan. Having GBP 50,000 and blowing away GBP 25,000 on a first bet will leave you at a significant loss. With the remaining GBP 25,000, you need to gain 100% profit just to recover your lost money. The profitability of spread betting can be improved substantially when one enters with a clearly-defined spread betting plan, which is based on total capital, bet amount per sequential bet, and frequency of placing the bets.
Structuring the Bet Entry and Exit
On an average, Ami makes 4 winning trades out of 5, while Ben makes 1 winning trade out of 5. Whose trades are more profitable?
The common answer will be Ami, but it may be incorrect. Structuring the bets properly can allow one to be profitable in the long run even with a lower number of winning trades.
With GBP 10 per winning bet, GBP 50 per losing bet and 4/5 = 80% success rate, Ami effectively makes (0.8*GBP 10–0.2*GBP 50) = –GBP 2 loss.
With GBP 50 per winning bet, GBP 10 per losing bet and 1/5 = 20% success rate, Ben effectively makes (0.2*GBP 50–0.8*GBP 10) = +GBP 2 profit.
The key to the game is placing the bets right, with the right amount depending upon success percentage. Losing small multiple times and gaining big a lesser number of times can compensate for any losses, if trades are structured properly.
Right Market and Right Instrument Selection
A UK-based spread betting firm like CityIndex offers spread betting across 12,000 established global markets, with asset classes including stocks, indices, forex, commodities, metals, bonds, options, interest rates, and sectors.
Most novices tend to simultaneously play around in multiple markets and securities without a clear understanding. One should build expertise in a few asset classes. Attempting to generalize will lead to mounting losses.
Prepare, Plan, and Practice Before Entry
Most spread betting firms offer a free practice demo account with virtual currency. Learn the tricks of the trade, backtest the structured betting plan, and practice it multiple times before jumping in with real money. Markets will remain forever, but real money lost during an initial phase of ignorant and inexperienced attempts will be difficult to recover.
Once comfortable with virtual returns, enter with real money but start small and then expand as the betting profits increase.
Controlled Use of Leverage
Spread betting is available on leverage, which magnifies profit (and loss) exposure despite limited capital. With GBP 100, a 10% leverage margin can allow one to make bets for up to GBP 1,000, while a 1% margin allows exposure up to GBP 10,000. Leverage is a double-edged sword—it magnifies the profits when a bet works favorably, but also the losses if it goes wrong. Successful spread bettors use leverage efficiently with tight controls to their benefits, while novices get tempted to take large positions and end up losing more than they have. Controlling the leverage usage, based on realistic availability of the capital amount, is necessary for success in spread betting.
Factor in the Tax Benefits
While devising a trading plan, or while comparing performance from different trading activities, it is important to factor in the tax benefits available in spread betting. This is a very significant factor to making genuine profits.
The Bottom Line
Spread betting, though illegal in the U.S., is very popular in the U.K. and European countries. It offers high profit potential, but most traders lose out during the initial entry phase due to ignorance and inexperience. (Related: Whatare the biggest risks involved with financial spread betting?) Building sufficient knowledge, selecting the right instruments to spread bet, and practicing and backtesting the system based on the outlined points can assist in generating profits from spread betting.
Read more: Investopedia
Online Spread Betting
A central feature of financial betting is the fixed risk nature which
allows market participants to limit the risk to a known amount. When
one opens a bet (long or short) they know beforehand what risk they are
taking. What important here is that you can exit your bet at any time
before settlement thus you have an option of minimizing the risk even
further. The same can be applied to the winning bets (you can collect
the win before the settlement time).
Liquidity is always provided and is achieved by the bookmaker acting as a market maker, always being willing to sell bets to a buyer, and in the case it is permitted, to buy bets back from a participant wanting to sell the bet before it expires.
A central feature of financial betting is leverage. The benefit of leverage to the participant is that it allows a greater percentage change in capital than if it were invested directly in the underlying asset. This makes financial betting less capital intensive than trading directly on securities exchanges
Liquidity is always provided and is achieved by the bookmaker acting as a market maker, always being willing to sell bets to a buyer, and in the case it is permitted, to buy bets back from a participant wanting to sell the bet before it expires.
A central feature of financial betting is leverage. The benefit of leverage to the participant is that it allows a greater percentage change in capital than if it were invested directly in the underlying asset. This makes financial betting less capital intensive than trading directly on securities exchanges
How To Spread Bet
Managing Risk in Spread Betting
Despite the risk that comes with the use of high leverage, spread betting offers effective tools to limit losses.
Despite the risk that comes with the use of high leverage, spread betting offers effective tools to limit losses.
- Standard Stop Loss Orders - Stop losses orders allow reducing risk by automatically closing out a losing trade once a market passes a set price level. In the case of a standard stop loss, the order will close out your trade at the best available price once the set stop value has been reached. It's possible that your trade can be closed out at a worse level than that of the stop trigger, especially when the market is in a state of high volatility.
- Guaranteed Stop Loss Orders - This form of stop loss order guarantees to close your trade at the exact value you have set, regardless of the underlying market conditions. However, this form of downside insurance is not free. Guaranteed stop loss orders typically incur an additional charge from your broker.
The Bottom Line
Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace.
Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace.
The temptation and perils of being
over leveraged continue to be a major pitfall. However, the low capital outlay
necessary, risk management tools available and tax benefits
make spread betting a compelling opportunity for speculators.
Spread Betting Companies
Financial betting providers
Financial betting is sometimes integrated within gaming companies. There are also specialized financial betting firms, some of which might also provide financial spread betting and/or CFDs. As financial spread betting and CFD brokers are regulated by the UKs financial regulator the FSA and not gambling commission there are limitations on financial betting they can provide but all the brokers provide binary betting.Gaming companies providing financial betting include:
Other financial betting firms include:
Sport Spread Betting
What is Sports Spread Betting?
Most punters are familiar with fixed-odds betting, where
players bet on an outcome and are given odds based on the likelihood of
that outcome. But another form of sports gambling has been growing in
popularity over the past few years, especially in the United Kingdom.
It's referred to as spread betting, and while the risks are higher than
fixed odds, so too are the rewards. Sports spread betting is based on
the same concept as the stock market, where a Buy Price and a Sell price
are quoted for shares. for example Shell 405 - 410, meaning that the
stockbroker is offering to buy Shell shares from you at 405, or sell
them to you at 410.
Spread Betting is an unfixed bet type that
empowers the punter to predict an outcome of a match or event and back
their judgment against the 'spread' quoted by the sports spread betting
company. The 'spread' is a scoring range created by the sports spread
betting company on a specific event or match. If punters believe this
spread is too high or too low, they can sell or buy accordingly. The
winnings or losses are calculated by the stake multiplied by the point
difference from the spread.
About ten years ago someone had a brainwave and realized
this could be applied to sports. It is hardly surprising that since
then sports spread betting has really taken off. Basically, the punters
will name their stake and decide if their bet will be higher (sell) or
lower (buy) than the point spread quoted by the sports spread betting
bookie.
The advantages of sports spread betting are many and various:
- Potential of large wins from small stakes.
- You can bet in running.
- Markets are more equally balanced.
- You can back selections to do badly as well as to do well. i.e. for example you can bet for a particular player to score or not to score.
- The more correct you are, the more you win. (Of course, the more wrong you are, the more you lose!).
- It is more exciting than fixed odds betting because your profit can keep going up. e.g if your team keeps scoring!
- Once you have opened an account, bets can be placed in seconds either online or over the telephone.
- You can close your spread bets when you like. As soon as soon as you are in profit you can take your money and run. Even before the match or season is over. This also means that you can cut losing bets early.
- Similarly, you can minimise your risk with a stop win/loss.
- You don't need to tie your money in the bet unlike what happens in fixed odds betting where you place your bet and wait for the event to finish. With spread betting there is no need to pay for the money upfront - bets are settled when the market is over so you don't need to have your money tied up for the whole season if you are betting, for instance on which team will win the Premiership.
- Unlike with conventional bookmakers, winning accounts are not closed. The spread firms make their money on the spread - the difference in price between what you can buy at and what you can sell at (just like the bid and offer prices of a stockbroker for a share).
- Spread firms in the UK are monitored by the Financial Services Authority, which means your money is always safeguarded.
Disadvantages:
- The computations to work out profits are slightly harder. Example: difference of outcome and spread multiplied by bet stake.
- Losses can be bigger than your stake.
Spread Trading
Spread Trading
Spread trading in futures is as old as the hills, yet it is an entirely new concept for most current traders in futures. In this introductory piece, we will show you that spreads can be the most conservative, safest way to trade in the futures markets.
But first, what exactly is a spread?
A Spread Defined
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to say it the opposite way: “A spread is purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. Either way you say it, it is a spread.
In finance, a spread trade (also known as relative value trade) is the simultaneous purchase of one security and sale of a related security, called legs, as a unit. Spread trades are usually executed with options or futures contracts
as the legs, but other securities are sometimes used. They are executed
to yield an overall net position whose value, called the spread, depends on the difference between the prices of the legs. Common spreads are priced and traded as a unit on futures exchanges rather than as individual legs, thus ensuring simultaneous execution and eliminating the execution risk of one leg executing but the other failing.
Spread trades are executed to attempt to profit from the widening or
narrowing of the spread, rather than from movement in the prices of the
legs directly. Spreads are either "bought" or "sold" depending on whether the trade will profit from the widening or narrowing of the spread.
Spread Trading Explained
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