T2W Trading Community

This article is aimed at those who fancy a go at spreadbetting, but haven’t a clue what to do. The hope is that by the end you’ll know enough to get started with a tiny bit of confidence. It goes on a bit, but compare it to books on the subject and you’ll realise it’s admirably brief.

Trading requires deep pockets, right?

Nope.

I’m pretty sure that out of the 20 odd thousand T2W members not every one of them has £500,000 - £1,000,000 to invest – in fact I’d take a long right now on the probability that thousands and thousands would consider £1000 quite a big lump to invest, especially as so many of us are struggling to learn how to survive, let alone win.

So let’s assume you have a few hundred, or a couple of thousand, to invest. You like trading, you want to make some money - what could be simpler than that? The really good bit is this - if you get good at it then simple old compound interest and time will make you rich, regardless of where you start. If you are pants at it (trans: not overly effective) then you will achieve the reverse - a dwindling money supply (save the last 50p or so for a Mars bar, you’ll need the energy for running from the spouse).

What can you do with £500 - £1000 then? Well, trading shares the traditional way is right out - a long trade on £1000 of shares means all your money is invested in one trade – that’s very risky indeed. After paying the broker to buy the shares, plus the spread (more on that soon) plus a tax called stamp duty in the UK, it all combines to ensure that even after risking everything on one throw of the die* you’ve as much chance of coming out ahead over anything less than a glacial period as I have of becoming Pope.

(*Dice is the plural of die - with £1000 you can’t afford two of them)

Fortunately there is an alternative, and with £1000 you can spreadbet. With a pot this size, if you’re a daytrading type, you could run a number of trades per day at £1 per point.

As an example I’ll choose five stocks from yesterday (20 January) selected solely on the basis of their margin requirements and imagining we had mastered trading to a perfect level. You could, for example, have traded General Motors, Biogen, Home Depot, Qualcom and Intuit. If, through amazing prescience, we had shorted at the highs and longed at the lows – Home Depot we profited by £74, £55 on GM, BIIB (Biogen) we made £297, INTU we went long and made £155, QCOM we made £110. Okay, my cheapo calculator says that with this perfect timing and £1000 in my SB account I could have made 69% profit in a single day. £1000 may not seem that much to start with, but let me tell you, at 69% a day I could make a hamster a billionaire inside a year. Unfortunately, though, even Luke Skywalker with the force would be unable to achieve this level of trading mastery and while spreadbetting may make it easier to make a few trades on a limited budget, it does not, of course, make trading itself any easier.

How do I get started?

I’m not going to attempt a comprehensive coverage of spreadbetting here but I am planning to highlight a few things that will speed you along the path from ‘rabbit in headlights’ to ‘frightened but having a clue’ - after that it’s up to you to decide where to go next – this is for raw beginners.

Okay, first off – what is a spreadbet? Simplified the spreadbetting company is a bookmaker, they list things you can spreadbet, like shares, indices, commodities, forex and so on, some offer bets on sports, mortgage rates, all sorts. I’m going to stick to shares mainly, the mechanics of trading financial items like shares, commodities (all that ‘buy sugar, sell lean hogs’ stuff) and indices (buying/selling bets on the Dow, FTSE and so on) work pretty much the same. Sports etc won’t be wildly different, but I don’t touch them.

Before you open a cash account, you can trade with pretend money (paper trading) with most of them, so you can practise long before you risk real money. Accounts can be funded online with your switch or credit card, and it all goes through fairly quickly and smoothly these days. A number of companies are mentioned in countless threads and there are also reviews in the T2W reviews section – go read some.

I’m going to use things I see/do in my Capital Spreads account as being ‘typical’ spreadbet company stuff, different companies will vary in how things are done, what is available, etc – but in the main they’re all going to have more similarities than differences.

So, you enter your username, tap in your clever password (pa44w0rd – cue furious logging in to change passwords all over the planet) and you see a list of popular bets on offer, plus a bunch of tabs offering you the option to look at different lists.

Here’s a picture (about time):-

This is the sort of thing you’ll see once past the login – these screenshots were taken after the US markets closed on Friday 21 Jan 2005, by the way. This is just a mix of bits and pieces, but we can use this to see what info is available to us – obviously the column reading ‘closed’ isn’t much use right now, but let’s check the rest out. Whichever spreadbet company you go with the info here will be somewhere around the screens your own spreadbet company presents – you’ll soon become familiar with other screens.

Okay, tabs at the top, left to right. Open positions lets you see all current bets, you can see what you have in play, and there are simple icons to click on to call up a dealing window to close each one. To open a bet you also just click on an icon, a small popup appears to tell you the current prices on offer, and there are ‘buy’ and ‘sell’ buttons on it, also (of course) a button to quit without trading because you went off the idea. Buttons/icons are there to call up charts, info on the share, transfer to portfolio etc (not shown, as markets are shut, are buttons to initiate your bets).

Why is there more than one price on offer?

Yes, there is a price for buying, and one for selling – they are different, look at the DAX Rolling Daily above (never mind what it IS, just look at the price...). 4193-4196 is the quote, if you want to buy this bet, ie you are betting that the DAX will go up, then you buy at 4196. If you think it will fall you short it (sell) at 4193. If you are watching the Dax on a live feed like esignal or ADVFN then it might be showing 4194.5.... if you are long it has to go up 1.5 points before you break even at 4196, a short trade will break even after it has fallen 1.5 points to 4193. That’s the basic idea – the company quotes one price to buyers, a different price to sellers, and the few pennies in the middle is where they make their money day in, day out, taking a few coppers off every trade (that, and people like me losing, of course).

This is a single dropdown, listing the share collections we can look at to find items to trade. We’ll see shortly what ‘rolling’ and ‘Quarterly’ means.... you see that Capital Spreads will let you trade UK, US, European, German (DAX) and French (CAC40) shares.

Okay, let’s concentrate on stocks – each spreadbet company will be different, but generally speaking you’ll find lots to trade, each company deciding what to offer bets on.

More tabs then (quickly) – the others allow you to check a list of trades you’ve made, you can see what stop losses are ready for your open trades, you can call up a window to add money from bank or credit card to your account, you can make a portfolio of shares up by selecting from the lists on the main display. You can see on the lower row of tabs the different categories of instrument you can trade – shares, indices, commodities, forex, and so forth. Click a tab, pick what you want to trade, and you simply tap how many ‘units’ to trade and click the trade icon to call up the dealing popup. ‘Units’ – some brokers will let you trade as low as 1p to a point while learning, a fairly average minimum trade is £1 (or $1) to point... what this means is simply that for every 1c price change on a US share you win or lose £1. (Eeek!)

You DO therefore need to keep an eye on things, a share that gaps down $2 will cost you £200, and stop losses only work if the price passes through them, not past them. Some spreadbet companies offer guaranteed stops – ie you’re out at the chosen price, gap or not. These tend to cost more in the form of a bigger gap between the price you enter at and the price you break even at – all spreadbets, on entry, will be at least a pound or two in loss because you’ll be ‘the spread’ adrift at entry, the trick is to get to break even and into profit as soon as possible! The spread varies, depending on what you trade, but it’ll generally amount to a small bit more than the bid-ask spread you see in your real-time datafeed.... it’s shown on the screen, and continually updated when markets are open, so just make a point to check it before trading.... there’s no point trading a share that is rangebound in a 10c wide range if the spread is 15c!