Ahead of this post, FinanceInterns would like to draw the attention of the reader to the potential losses that can be incurred when engaging in spreadbetting. We do not promote spreadbetting - for aspiring traders we would suggest opening a virtual account to get accustomed to the movements of the markets.
So, next month I’ll be embarking in the world of spread betting. I’ve been toying with the idea for a while now. I’ve had experience of owning buy-to-hold shares, but this is a different ball game.
The spread betting phenomenon has grown exponentially in recent years. This could be due to a number of different reasons. I would assume it’s down to the global financial climate; interest rates are so low in Northern Europe and around the world, that it’s pointless saving money in a bank; people are now looking to make their own money work for them instead.
As Finance Interns is about younger people trying to break into the City, I’ll focus the article for graduates/undergraduates.
What is spread betting?
City Index define spread betting as: Spread betting is a derivatives product that allows you to trade on the price movements of thousands of financial markets including indices, shares, currencies, commodities and more.
You can use spread bets to speculate on price movements irrespective of whether the markets are rising or falling. If you go long (buy), your profits will rise in line with any increase in that price. If you go short (sell), your profits will rise in line with any fall. Similarly, if you go long on the price and the underlying stock price falls, you will incur losses. See an example of how you can spread bet with City Index.
It’s possible to trade a wide variety of markets in spread betting, for a low cost. I’ve decided to start with I’m going to trade on the main indices as a starter; FTSE, NASDAQ, DAX AND CAC. I guess you have to start somewhere, so I’m going to make it as simple as possible to get going. Most of you will have a sound knowledge of a particular indices – whether it’s the FTSE, NASDAQ or Nikkei.
Why should I be spread betting?
The reasons why you want to embark on spread betting will be different for every individual. I guess some of the key advantages are:
Is it expensive/risky?
Not particularly. Essentially, to start a spread betting account you need £100 to deposit. Once the money’s been deposited, you can get trading. Naturally, you want to compound your money. Leave the money in there when you make successful trades to build the pot of money quicker and quicker. Obviously, spread betting’s clue is in the name, ‘betting’!
The key difference between buying traditional shares and spread betting is the risk/reward element. With spread betting, if you make a poor trade and you get it completely wrong, you have the potential to lose more than your initial deposit – worth remembering. Most traders use what’s called a Stop Loss. This is a point at which you instruct the computer to pull you out of the trade at the lowest point possible where you cut your losses, hence the name stop loss.
The key point is, only deposit what you can afford to lose.
The picture below made me smile when I saw it. I think it sums up trading pretty well.
Where should I sign up?
There are so many different companies out there at the moment. I’ve decided to open mine with ETX Capital in London, due to the lower risks. They allow you to bet from 50p per point – useful if you’re still learning the ropes.
There are plenty of companies out there; ETX Capital, City Index, IG etc.
Where should I find information?
I’ve found some people on Twitter to be extremely helpful, in particular a guy called Ash (@hooper10) – well worth a follow for you established, or newbie spread betters. He trades the futures market. I’m astonished to find so many people that are only too keen to help, very refreshing. As with anything financial related, there’s always going to be differences in opinion on what’s the best option.
You’ll need to be able to sit down and analyse financial charts. There seems to be tips for novices out there on how to understand them properly.
A guy called Anton Kreil is very interesting and you can learn a lot from him. (@AntonKreil) To find general macro-economic news, you would obviously need to refer to the relevant financial press; Bloomberg, Wall Street Journal, Financial Times etc.
The key is to be well informed, consult the news/various trading websites, and attend events where you can converse with other traders to share and learn expertise.
It seems pretty clear from my knowledge that research and analytics is paramount in trading. You really have to take the time to analyse charts and try to suss out potential trades. The scope to what you can trade is huge as I mentioned; Indices, stocks and forex.
Just a point to add in, many companies have a practice facility on their site, where you can practice and learn the ropes without potentially sacrificing your own money. Once you feel confident, you can then upgrade to a full account and you can deposit your hard earned money. I’ve set up a Twitter handle where I will be posting updates, once I get started: @FinancialDavid if you’re interested in learning more. I hope you found my thoughts interesting. It would be great to hear some of yours.