SB on Stock Indices

I'm interested in starting trading the indices, and was considering spread betting on the FTSE. However I see that the average spread of a FTSE100 Dec contract is 13 points whilst the Dow contract is 16 points, which as a %age is a smaller spread, and therefore more preferable to trade than the FTSE100. Does that make sense?!
 

tomorton

Legendary member
8,197 1,253
Yes it does but take care kensitp. There's more to it than the spread, though keeping overheads under strict control is businesslike.

The Dow is often said to be far more volatile than the FTSE, so more difficult to make sensible entries / exits.

Don't forget the SB firms don't just have spread to make their costs back, they also have the bias, being the amount the spread is ahead or behind the underlying index, depending on which way they think its going to go. You will see spreads totally separated from the current index value, the index value standing totally outside the bid or offer spread. So having a tight spread is comforting, but no real help if the bias starts 20 points off the index.

And the Dow is not traded at times to suit everyone - its risky to be in a market you can't monitor.

London and New York are different markets with different influences on their behaviour and different constituents. they move in different directions more often than thought, at least often enough to make for painful drawdown.

Why not paper trade for as long as you can stand it, until your success rate is good and consistent, then try small stakes until your money management is established.

Be lucky!
 

peto

Established member
944 83
Yes

The disadvantage of any given spread is generaly less the larger the index, because of the likely larger daily moves the larger index makes.

But where have you found these spreads? They're horrendous and unless you plan to trade very long time periods then you will never survive with them. Look in the 'Broker Reviews' elsewhere on this site for spread betters with spreads of 3 or 4 points. Futures brokers will bring this down to 1 point or so, but you'll need to gain plenty of experience and knowledge first.
 

axthree

Active member
185 0
I just thought I would offer an opinion.
I see a lot of criticism of SB on the different boards about how expensive the spreads are etc.,
Let me float my own philosophy.
Trading is a business
All businesses involve risk of loss.
Assume betting £1 per point on the Dow.
Spread=10 points. This £10 is your outlay.
The dow moves in your direction and you chicken out and close for a 50 point profit on a day with a 90 point move in your direction.
Don't cry into your beer.
How many businesses will give you a 500% return on outlay in one day or even one week?
As for the risk of loss? Every business loses at some time, on some deal.
You are not FORCED to look at the screen as your losses move through the £300 barrier as I did on one day I would rather forget.:eek:
 
Thanks

Thanks for the replies guys, this is a fantastic site! The spreads I quoted were guaranteed stop losses with IG Index. The guaranteed stop loss does add a premium of about 3 points I think.
 
Guaranteed Stop Loss

sidinuk said:
A guaranteed stop loss premium is like a Dixons extended warranty.

Lol nice analogy! Could you expand on that though, is it because trading the indices are less risky thatn an individual stock e.g. it can't get suspended etc.?

Thanks
 

sidinuk

Established member
624 5
kensitp,

The vast majority of the time a stop will be honoured exactly by the sb company. The only time you need worry is if the market really flies as the result of an economic announcement (quite rare these days for the indexes to move too far though, but it can't be discounted) or when the sb co is closed and can't exit your trade until they open(over the weekend). So be flat on Friday night and don't trade around economic announcements and all you need worry about is Osama Bin Ladan being 'captured' sometime just before the US elections.

So basically a guaranteed stop will make you feel more comfortable in your trade and every now and again you'll be glad you had it but you'll pay very dearly on the 95/100 trades where you didn't really need it. Much like an extended warranty on an electrical item which only has a 5% chance of actually breaking down but for which you paid 25% of the price for.

Remember, trading is all about probabilities.
 

Bono

Junior member
33 0
kensitp said:
Thanks for the replies guys, this is a fantastic site! The spreads I quoted were guaranteed stop losses with IG Index. The guaranteed stop loss does add a premium of about 3 points I think.
I agree stops are a must when SB on the Dow etc but take care where you set your stop!
I have been stopped out alot recently by strange intraday spikes that don't show on the underlying market (I now this has been discussed on another thread recently).
My point being on a good day even being careful with your stop position you can find yourself looking at losses!!
P.S I also use IG and not sure if this happens with other SB firms.
 

stevet

Established member
917 5
using stops is very complex and unless you are very experienced you will lose money by placing stops

intraday spikes are just signs of short term illiquidity in the underlying
 

Bono

Junior member
33 0
stevet said:
using stops is very complex and unless you are very experienced you will lose money by placing stops

intraday spikes are just signs of short term illiquidity in the underlying[/QU

Yes, this is a problem for me as without a stop in place a bad trade seems too run out of control and by the time I have had a chance too close the trade i'm into a big loss!!
But like you say it's complicated (and i'm not that experienced!) not sure what the best risk managment policy is??
 

stevet

Established member
917 5
learners confuse the use of "stops" with "exiting" a trade - you exit at the point that the positive reasons that caused you to enter a trade - have either gone to neutral or negative - and this is the same wether the trade has gone your way or against you
 

Bono

Junior member
33 0
stevet said:
learners confuse the use of "stops" with "exiting" a trade - you exit at the point that the positive reasons that caused you to enter a trade - have either gone to neutral or negative - and this is the same weather the trade has gone your way or against you

Stevet thanks for your insight but at what point do you get out of a bad trade i.e if you open a position (with no stop) but the market goes against you quickly do have a set percentage for losses? or do you just close a quickly as poss?
Would you consider on the flip side adding a fairly distant trailing stop on a position in profit?
Lots of questions!!! apologies.....
 

stevet

Established member
917 5
you get out of a bad trade by not entering it in the first place

and if you entered the trade for the right reason - you would not consider it a bad trade if you exit without profiting - since you would be used to doing that on an ongoing basis - but knew that the profit from the trades that worked out - easilly exceeded the losses from the ones that went wrong

so if you had a specific and correct reason for entering the trade - you would know exactly when to get out - be that at a loss or a profit

learn to enter correctly and forget about stops
 

Bono

Junior member
33 0
stevet said:
you get out of a bad trade by not entering it in the first place

and if you entered the trade for the right reason - you would not consider it a bad trade if you exit without profiting - since you would be used to doing that on an ongoing basis - but knew that the profit from the trades that worked out - easilly exceeded the losses from the ones that went wrong

so if you had a specific and correct reason for entering the trade - you would know exactly when to get out - be that at a loss or a profit

learn to enter correctly and forget about stops

Good point! had not really looked at it like that, more homework, less guess work,more patience!!
Thanks again...
 
 
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