Now before we go on to look at these strategies in detail, let me start by covering some of the basics of spread betting, and as you will see on the following pages, I have also included information on the current spread betting companies, the platforms they provide and types of spread betting accounts available, as well as an overview of the markets generally available for financial spread betting. Finally I will explain all the spread betting strategies I use, so let’s get started with an overview of the market, and what to avoid when you first start spread betting!
Whilst the spread betting market in the UK is a relatively new one, having only been established in the late 1970′s, it is now one that is developing and maturing rapidly, both in terms of the markets and companies. One thing that has not changed however, is the ease and simplicity with which one can lose, and lose a great deal very quickly. Indeed with leveraged products it is possible to lose more than your starting capital, a fact that many new traders either ignore, forget, or simply don’t appreciate. Whilst the simplicity of executing trades, both in falling and rising markets is one of the great attractions of spread betting as a methodology, this very simplicity masks the hidden dangers, with spread betting accounts open in minutes, and trades executed with no thought or strategy, other than a simple bet on whether the market will go up or down. This is a fatal approach in any trading, whatever the market or system you are using and will ultimately mean that you lose all your money – fast. Trading requires hard work, discipline and study, and if you are not prepared to put in the hours, then you simply cannot expect to be successful - lecture over!
So why is spread betting so dangerous, and why do only a handful succeed? Is this the fault of the industry, the markets, or the companies themselves? The honest answer is that it is probably a combination of all three. If we take the spread betting industry first, it was originally developed for the professional traders, allowing them to trade more easily in markets that until then had been impossible, with gold being the first example. Following its success as a professional trading tool, the industry then saw the opportunity to develop markets for the retail trader, providing the opportunity to go long or short very easily on a wide variety of financial instruments. In the early years many of the spread betting companies compounded this with failing to provide any warnings about the dangers of leverage or margin, preferring to constantly replace losing traders with fresh accounts, and offering little in the way of education, training or support. Indeed the industry is only just starting to shed it’s rather tarnished image, as today’s spread betting companies fall over themselves to offer free seminars, courses, trading tools and a positive plethora of learning materials! The markets themselves compounded the problem by offering increasingly diverse trading instruments which the spread betting companies then developed for their own OTC products, and finally of course the spread betting companies themselves who saw an opportunity to make money fast from unwitting clients, eager to jump onto the bandwagon of this new and exciting trading method, in the hope of making huge profits very quickly, and then retiring. The rest as they say is history!
Spread betting remains a very dangerous market if you are not prepared and understand the risks. Whilst it is easy to go long or short and wait for a profit or loss, all trades are leveraged meaning your profits and losses are magnified by using borrowed money from the broker. Without solid risk and money management, and a well defined spread betting strategy, you will lose. So I hope the spread betting strategies outlined here will at least make you stop and think, before jumping in with both feet and opening a spread betting account with little or no thought – just stop, read the next few pages and hopefully you will be one of those who manages to be successful longer term! So let’s look quickly at the spread betting companies themselves, their trading platforms and the type of spread betting accounts available.