T2W Trading Community

Making a bet

What’s it like then? Here’s an example –

I decide that National Semiconductor (NSM) looks like it’s going to go up, it’s one of the tickers listed in ‘my portfolio’ which is the tab I have selected most of the time.

On the line alongside each share name in the portfolio (or share listing screens) there’s a button labelled ‘trade’ next to a small blank box. I click on the box so that I can type my stake into it, and as I’m small fry I type ‘1’ in to inform them that I want to place a £1 per point bet (ie I win or lose £1 for every cent NSM moves). I click the ‘trade’ button and a small popup appears that tells me the current prices on offer for NSM, one for shorting the price, one for going long on it – I click the ‘buy’ button if I think the price will rise, and the ‘sell’ button if I want to bet on it falling (these boxes and buttons aren’t shown when the markets are closed, so they’re not showing in my screenshots).

The important bit here is that the company don’t know which I want to do until I have seen their prices - they can’t wait to see that I’m going long and then raise the price a bit, which is one thing that might worry beginners unaware of how this works.

I now have an open position as soon as the trade goes through, which is usually a few seconds after I hit the buttons. I can go to my ‘trade history’ tab and see this new trade listed there, I can look at my ‘open positions’ and it’s there. At the bottom of the screen my current account balance is shown, and for each trade I have active my open positions screen continually updates to show me which are winning/losing, and by how much, what the current prices for it are, what I paid for them, and so forth, so I’m never unaware of how much I have at stake, how much I am in profit or losing.

Drawbacks

If you’re one of the talented and lucky few who excel at spreadbetting you may eventually need to consider other means of trading the markets, such as direct access. No matter what the spreadbet companies say I’m sure they’re not really as pleased as they make out if a customer takes 10 grand a week off them, and you’ll be looking to save the extra cost over and above the spread visible in the market anyhow.

It’s risky – you are betting purely on the price move, so if NSM is $25.00 and it goes up to $25.10 at £1 a point, you stand to make £10 profit (ignoring the spread, which will probably mean you made more like £5) and you would have had to have £50 in your account to cover the margin requirement (IMR). Now, to make £10 on NSM through traditional share dealing would require almost $19.00 profit and you’d have had to buy 190 shares at $25 each, which is $4750, or around £2500. That’s leverage, using a small amount of money to get the effect of a much bigger amount.

The downside to this is that you are effectively multiplying the price moves – if you have a £500 account then proceed to pick a few bad shares that go down instead of up (shorts, obviously, would be the opposite) it doesn’t take long to have a bunch of trades that lose $5 between them - or £500 as far as your account goes! You have got to keep your eye on your trades, have effective stops in place to preserve your capital when you aren’t watching the price, and you must realise all the time that this leverage means you can go rich or broke much faster than you would trading the actual shares. If you think Amazon is going up, you bet long or a share trader would buy long – next day it has dropped $1, the share trader grunts, that’s a 2.5% loss just about... the share isn’t a basket case but it’s going the wrong way. The spread betting customer with a £500 pot has lost £100, the account is down 20% in one go – they don’t grunt so much as make a thudding sound.

A note about security

I have, occasionally, had the PC play silly B's while I have bets in play, and recovered it all quickly enough not to worry – but commonsense dictates that you keep a note of your account details and the spreadbet company’s phone number to hand. You really don't want to be poised to exit a position, have the PC go down, and be unable to contact the spreadbet company to exit. Prices on the more volatile stocks can move quickly, and at even £1 a point a 10 minute loss of contact could be expensive. This is another reason why you should change the computer generated stop to a more sensible, closer position as soon as a bet is underway – bad enough to find you can’t exit via PC and phone the day the local telephone exchange is hit by a meteorite, never mind having it happen when your stop is so far from the share entry that it represents a 50% loss! Some spreadbet types keep a mobile phone handy as a third backup system. There’s no limit, really, to how secure you might choose to make this.

Finally – the PC itself must be secure. You should have an antivirus program running, with virus definitions bang up to date, and the program set to update itself automatically. You should have it set to scan all incoming and outgoing mail, and not only schedule a regular scan of the whole PC but actually let it do it regularly – scheduling it, getting annoyed when it starts, and hitting the ‘stop scan’ button doesn’t count! My favourite is Norton Antivirus, but there are a good few out there - just pick a good one.

You should have a firewall program running – I use Zone Alarm Pro, which costs about $30, there is a free version ‘Zone Alarm Plus’ that is almost as good and will keep you safe.

Microsoft has an AntiSpyware program which is currently free to download – it's at
http://www.microsoft.com/athome/security/spyware/software/default.mspx

this will help ensure that nobody manages to stick a small program on your PC to report interesting things like your username/password back to head office.

The three items above will go a long way towards keeping you safe, and just about invisible to hackers. You cannot afford to have your PC crash due to a virus, you cannot afford to lose your passwords to a spyware program, and you certainly don't want anyone spotting your PC on the internet and hacking into it while you are online. These programs should be on everyone’s PC if they go online anyway, and all together they’ll cost about £30.

In summary…

• decide what to trade -commodities, shares, etc.
• decide the type of trader you are – impatient types might look at intraday swings, those with excess patience might look for long term trends.
• stick all the instruments you intend to pick the trades from into your spreadbet portfolio.
• consider doing what I do – copy the portfolio into Excel or similar, and add columns of useful data (volatility, IMR, current share price perhaps). The idea is that you want the important data readily to hand when trading... you don't want to jump at a share price move only to discover the bet is rejected because your margin limit has been exceeded.
• keep the information readily to hand (and a phone, of course) so you can exit trades if your PC or internet connection go down.
• ensure your PC is secured against virus, intrusion, and spyware.
• open a simulated account with spreadbet companies (try several) to get as familiar as you can with the platform – consider having more than one ‘live’ account when the time comes, some companies are regarded as being better than others for one particular type of bet.
• review your progress critically, not just trading success but are you buying/selling the right stocks etc? Are your trades only just clearing the spread costs because the share price moves aren't big enough – on the other hand are you trading items that are too volatile, risking too big a loss from what is a ‘noisy’ price chart?

You will need to find suitable charting too – you need a good datafeed whatever period you chart. I shouldn't have to say this but don't try intraday trading based on the 15 or 20 minute delayed charts shown on the spreadbet site!