Spread betting & strategies

[David_Quinn]

Hi

I am totally new to trading, although I have bought stocks and shares through IMIWEB in the past. My stock selection has been fairly successful, but I have missed peaks on a few occasions and as I have only been dealing with small amounts the commission charges have dented my profits.

The information I have read about on this community fascinates me and I would love to learn more. I have read the 'Turtle Strategy' and I like the idea of a system, but for it to be worth following it seems that you would need a large fund to use. I am only intending to risk/invest a small amount to build up a fund and learn. What is the minimum entry to

From reading posts, I understand that spreadbetting is a way of gearing up your capital, but I am struggling to understand how you would apply a strategy to spreadbetting. I am probably being totally dumb, but if someone could help I'd be grateful.

Secondly, how do spreadbetting firms get paid, because if its anything like a standard bookies, then the odds are bound to be set in their favour, and I find it difficult to believe how anyone can 'beat the book'.

Yours

David Q.

 

[Trader333]

In theory, Spreadbetting companies make their money in taking the difference between the price you can buy at and the price you can sell at and vice versa.

So if you thought that a stock is likely to rise in price and the spread is being quoted as £2.50 to £2.60 then if you decide to buy (go long) on this stock at say £10 per point then the SB company will make the following profit if nothing changes and you sell. (260 x 10)-(250 x 10) = £100 (and you lose £100)

But because you think the stock will rise in price and let's say it does by more than 10 points then when you come to sell you will make a profit at anything above the 10 points.

However, there has been numerous discussions on here about SB companies deliberately skewing prices to gain an unfair advantage and so taking more of your money than just the spread. People argued for both sides of the case and to be honest the issue was unresolved.

I hope this helps


Paul

 

[reddragon]

Hi David,
Welcme to the board and based on my few months
experience here youv'e arrived at the best place to learn.

Spread betting companies make their profit from the spread
between the buy and sell price they quote, for the Dow this is
7 points and for the FTSE it's 4pts. Also the buy/sell quote is
derived from the futures market and this is a few points ahead
of the market e.g the Dow stands @ 9650 and youv'e decided
it's going to go up - so you click up the trading window but
because the futures is already up the quote your offered is
more likely to be 9656-9663. Also, you have to remember that
the spreadbetting companies themselves hire the best TA
people available to provide them with opinions as to where
the market flows and turns. so as to enable them to quote
spreads a few points ahead.

Finally, here are 3 further websites that i've found v.useful:
www.investopedia.com
www.chartpatterns.com
www.hardrightedge.com - on this site there is a daily
analysis page, it's listed in
blue in the top left hand side,
which is ALWAYS a good read.

 

[JonnyT]

No they don't, it's all done in software!!!

JonnyT

 

[reddragon]

Hi,
"it's all done in software"
I find it hard to believe that they don't involve someone's
view(s) when making a final decision - markets are fuelled
by human fear and greed, and until they come up with a
mathematical formula to quantify these emotions, which can
then be programmed into the appropiate software, then the
human brain will have the edge.

 

[JonnyT]

Why?

They set certain parameters and hedge in the markets only when necessary to avoid the possibility of large loss. A bit like a small bookie offloading a big bet. Ah you say they are a bookie...

The Software sets the prices based on the underlying and the SB company's wiggle factor etc...

JonnyT

 

[sidinuk]

The human brain doesn't have an edge, that's why 90% of traders lose. They think that they can out-think the market, but all they are doing is exactly the same as everyone else who thinks they know what the market is going to do.

Do you really think that the SB co's employ people to sit and manipulate each market depending on where they think it is going rather than just following the futures? If anyone could do that successful then they wouldn't be a wage-slave for a bookie, they'd be the richest trader alive.

 

[reddragon]

Hi,
I need to clarify - i wasn't trying to say that the SB companies
employ people to manipulate the market but what they do
manipulate is the spread their offering at any particular
moment. In a perfect (LOL) market the spread would straddle
the index, i.e if the index was 9600 the spread would be
9597 - 9603. However, in the few months that i've been trading,
there are 3 occasions, where having planned an entry point
for a trade,, with the SB trading window on the taskbar ready
to be bought up, by the time i'm ready to click the buy/sell
button the spread is 25 40 points ahead. Ok sh*t happens
but my point is that a person on trading desk made a decision
to jump the spread ahead.

Ps - if the human brain doesn't have an edge then due to that
fact it follows that neither would the software - someone would
have to programme it to give it an edge.

 

[sidinuk]

The SB prices are derived directly from the futures markets, even for the 'daily' index quotes. They have to do this as the futures are more nimble and move ahead of the cash index. They wouldn't stay in business long offering a spread that exactly straddled the cash index.

I wouldn't take any notice of the cash index if you are spreadbetting. Get a live feed for the nearest contract month futures and use that, you'll quickly see how much is being added or taken away to simulate the cash index. You'll then be one step ahead of all the other punters using a chart of the cash index.

I think it depends on which brain you look at as to whether it has an edge or not!

 

[David_Quinn]

Can I just check something? Am I right that if the price ends up within the spread, no-one wins ? (except the firm)

 

[twiggytwo]

Hi Sidinuk, you are right on the button with regards the Spread Betting firms and how they only use the Futures to set the spread. Your advice on the live futures feed is 100% on the ball ! I have seen the spread move (increase in size ) too many times to not agree with you . the only answer is to be streetwise with your entry and exit points and this takes time to learn in spreadbetting, there is no short cut you just have to trade to learn and try not to get wiped out by not taking on more Margin than you can handle. Regards Twiglet

 

[shadeed]

Yes David you are correct - price ends up within the spread no one wins - buyers and sellers both lose.

 

[David_Quinn]

Thanks for the reply. I'm totally new and learning all the time, so confirmation of 'penny dropping' really helps.