Spreadbetting as an alternative to holding stock

[tscoop27]

Hi

First post here so it could be nonsense !

I have been looking at using a spreadbetting account instead of a regular online execution only account (as I don't think buy and hol and dividend reinvestment is the way to go with the markets as volatile as they are).

A general strategy would be to use wide stops to avoid being closed out and let a trade on hhandful of instruments run for 6-9 months.

I have read that the carry costs and transaction costs of future style bets are comparable to purchasing stock.

I wondered if any one here works in this way or am I missing some massive downside to using a spread betting account in this manner?

Dale

 

[Shanghai]

Sorry tscoop27 it is a little nonsense although not completely. Firstly I can't see what advantage you see in spreadbetting rather than buying the stock (or shares as you seem to be in the UK).

You then say that buy and hold is not good at the moment and then you go on to outline a buy and hold (for 6-9 months) strategy.

The main difference between spread betting and buying the market directly over long periods is the cost. You should calculate the interest charges etc for the spreadbet and compare the costs of buying the market directly. UK shares for example have a 0.5% stamp duty payable. This is why spread betting is one of only ways to trade UK shares short term. Longer term is is not so much of a factor.

Also saying that you will "use wide stops to avoid being closed" is perhaps not a good idea. You should try to define your own trading system a little better. Letting winners run and cutting your losses quickly on the losers is usually a better strategy.

 

[tscoop27]

Thanks for replyingShanghai

I will be the firts to admit that my strategy is a little ill defined at the moment - a cautious newbie!

I suppose the definition of timescales is the key for me. I work and do not have the time to watch ticker screens all day so scalping and even intra day trading will be difficult.

Interesting to read what you said about stops. I suppose using a wide stop is due to an ackowledged lack of confidence - that is if I could confidently place 10 bets and know that 5 would come good over a week period then I could use shorter stops- but I take your point.

Dale

 

[Shanghai]

Yes first you need to know what game you are playing and in particular what timescale. If you work then intraday trading is out, although that is probably good as it is not a good place to start in my opinion. The costs of intraday trading make it difficult to be profitable. Swing Trading may be an option for you. Or long term buy and hold might be fine if that is what interests you but the techniques are very different. If you are looking long term you will need to get a good understanding of company fundamentals, whereas generally these are not so important for shorter term traders.

 

[Trading2k]

I trade FTSE contracts and you could trade FTSE 100 annual with no roll over costs. In general I hold for 2 - 4 weeks and have defined entry and exit points. I am willing to hold for 2 months or more and have held for longer so it does work. I don't day trade and always take a longer term view. If you want to go through my trades have a look at my trade log. Financial spread betting diary trading FTSE 100, S&P and Dow Jones.

 

[tscoop27]

Thanks both

I have picked up so far,that no one strategy fits everybody, so its useful to get many perspectives.

Taking on board what Shanghai said I will try and shorten my stops (lessen the downside) on a few bets and see if I can pick out an approach.

By the way Trading2k - nice blog - just subscribed

Dale

 

[parkerproject]

Hi Dale
I do use spreadbetting and my strategy is always to go on ratio 2:1, 3:1 or if more the better.
The 2 and 3 is my return and the 1 my loss.
so for example for every $100 return , you are only willing to risk $50. this should be your minimum ratio, well it can go up which is ever better for you like 3:1 meaning for every $150 return you are only willing to risk $50

So this ratio will help you in setting your stop losses properly.Also don't try to make big profits overnight, what matters in trading is constant profit no matter how small.

One more advise, if you are new to spreadbetting, try to stay away from currency until you know what your are doing.

 

[BeginnerJoe]

I am curious of spread betting too. Will the spread betting firm kick you out if you are making too much money ? Obviously this would be a disadvantage compared to buying stocks. How much profit can the spread betting firm tolerate you making ? Given the proportion of people losing money on spread bets, I am not convinced the betting firms would bother hedging against your bets. So if you win, you hurt them directly and one would expect them to do something about it.

 

[parkerproject]

There is nothing like making too much profit in trading and by the way this firms are regulated by FSA.