You can spread bet in any market, and your profit comes from correctly guessing the direction the market goes. You do not need to bet on a specific price, just the direction. Spread betting is similar to CFDs as you don’t own the actual stock. But brokers usually offer no commission on spread betting, while CFD fees are often high. This type of trading is accessible to everyone interested in trading. It is often recommended to beginners as it is easy to grasp. As with all trading and investing, some techniques work, and some do not work. Below are four spread betting techniques that actually work:
1. Reversal Spread Betting
This strategy is based on identifying areas where trends are going to change direction. Here, you bet bullish or bearish, suggesting that the market will either increase or decrease. When using this technique, traders open a spread bet in the opposite direction to the current trend. For reversal spread betting to work, you need to take advantage of all tools and indicators. The most effective being the Fibonacci retracement tool, which helps determine if a market is reversing or if it is experiencing a retracement. Prices going beyond the identified levels signify a reversal in the market. The best confirmation tools for this technique are:
Technical indicators – Moving averages, MACD Stochastic oscillator Volume – High volumes suggest a market is going to continue in the same direction Key reversal candlestick patterns – Head-and-shoulders, double top and bottom
Reversal Spread Betting Example
You want to create a NAS100 bet. The NAS100 has been in an uptrend for the past week, and you believe it is about to experience a reversal. You use the tools available to you and decide to place a bet if you see the double top candlestick pattern. Should the market reverse, you will make a profit. However, if it continues on the same path, you will experience a significant loss. The tools are merely indicators, and there is no guarantee to how the market will behave. It is considered a medium-term strategy. You use the tools available to you to find the start and finish of a market’s movement. It includes indicators such as:
Moving averages Moving average convergence/divergence (MACD)
which help find the best open and close positions. Trend market spread betting is a popular strategy. It allows you to follow the market regardless of whether you are going long or short. However, you need to remain alert as trends can change in an instant. This technique also falls victim to overnight risk. When using this technique, decide on a timeframe to watch a market before placing your bet.
Trend Market Spread Betting Example
The price of an alternative vegan sausage is on an uptrend. You open a long spread betting position by buying the sausages. When you reach your profit target or the data suggests the market is about to reverse, you close your bid by selling the sausages and collecting the profit. Alternatively, suppose the vegan sausages were in a downtrend. In that case, you could open a short spread by opening a position to sell.
3. Breakout Spread Betting
This involves entering a trend as early as you can in anticipation of the price breaking out. Breakout spread betting is based on the belief that key price points are an indicator of movement or an expansion of volatility. Coming in at the right time allows you to take advantage of the trend from beginning to end. For this technique, you will utilize:
Volume trading indicators – consolidation and breakout patterns RSI indicators MACD indicators
These tools will help you identify resistance and support levels. To facilitate this technique, use your limit-entry orders at identifying price points. If the market moves, the order is automatically placed. It has been this way for over three weeks, but the data suggests it will soon break out into a downward trend. Historic levels of support show that a key price point is $1,385. You place an entry order to open a short spread if the price falls below $1,384. If this happens, your order is automatically placed. If not, then you haven’t lost or gained anything.
4. News-Based Spread Betting
News-based spread betting involves trading based on news and market expectations. As news travels fast these days, you need to have the skills to assess the information quickly after its release to determine if it is credible and of any use.
Does it match the market expectations? Has the news been fully integrated into the price yet?
To be successful with news-based spread betting, you need to:
Treat each news update and markets as individuals Know and develop strategies for each type of news update Assess the market reaction to the news as that offers further information
News-based techniques are useful for volatile markets like commodities. Almost every day, there is a news update that affects the price of coal or oil. There are also events guaranteed to happen, such as elections that will change the market. Use an economic calendar and keep up with worldwide events to help with this technique. News-based spread betting only works if you are familiar with global political, social and economic events.
News-Based Spread Betting Example
Votes for the presidential election are currently being counted, and two of the swing states voted differently than expected. This news has speculated that the US dollar value will increase by 0.23 cents on the British pound. From your knowledge of currencies during elections and the outcome from the last US election, you decide that the value will not change. You decide not to take any drastic action. Instead, you place an order to open a short spread should the value increase by 0.20 cents.
How Do I Become Successful at Spread Betting?
On the stock market, their bet is based on the speculation as to whether the asset will either fall or rise in price. They do not have a personal stake in the asset and are only betting on the speculative data they have available. In sport and commercial use, someone involved in spread betting will be rewarded for the accuracy of their bet rather than the fixed outcome. For instance, you may bet on a sporting team to win by a margin of 10 points. If they win by this amount, the bet maker will receive a payout because of the predicted margin. Because of this, stakes are often high, and debt can accrue quickly. It is also considered a risk because of its speculative nature. Stock traders who spread bet are ultimately relying solely on the changes in market volatility. With stocks’ higher volatility there are substantial gains and losses. However, without a plan or stock trading strategy, spread betting is highly risky. If you do want to consider building your lifestyle around spread betting, you must seek trading experts and discuss their successful strategies. It is not often the main investment strategy for trading experts, and they often lean upon other methods to derive long-term profit. Spread betting is used to capitalize upon uncharacteristic market volatility. Day traders and short-term traders can use spread betting to increase their assets and maximize profit. In sport, spread betting gives better odds to those placing the bet. If someone making a bet feels confident a team can win, they can increase the number of their outcomes by using spread betting. It is considered a form of gambling because of the speculative nature of the tactic, and therefore it is forbidden to conduct. You can bet on the spread of points to increase your odds. In this case, someone who bets on the margin must either expect the favorites to win by five or more points. If they bet on the underdog to win, they will be given greater leverage because of the decreased odds. They will get a return if the underdog team wins or loses less than five points. In comparison, you use borrowed debt to spread bet and do not have ownership of the shares you are betting upon. This means that there is less collateral if the price of a stock falls, but it also means you do not get dividends. Shorter-term traders usually prefer to spread bet as a payout is quicker. However, long-term traders like to buy shares and invest in companies that will pay dividends later. What you feel is better is dependent upon your trading strategies. The contract states that the buyer will pay the seller for the difference between the current value of a share and its value at the end of the time agreed upon in the contract. This is a very quick form of trading and is also speculative like spread betting. The major difference between the two is that spread betting speculates on present changes in market volatility, whilst CFD trading speculates on the price of an asset in projected time. You are not betting with owned assets or finance. The outcome of your bets is based upon the predictions made on market behavior. Although these behaviors and trends may be well researched, there is not the certainty like there is when you are trading with owned assets or income. Therefore, spread betting companies must follow strict protocols and laws. If they attempt to manipulate market volatility or drive the prices of shares either up or down, they will be subjected to a criminal investigation. Spread betting companies can lock traders out of trading if they suspect them of any dubious betting behavior. The advantage of spread betting in forex is that it allows traders to utilize high leverages with different foreign currencies. They do not need to transact on a foreign exchange market and can use the leverage of different currencies to place a bet. For instance, you may be placing a bet in US dollars with a company that operates in France and uses the Euro. You can bet on the changes in the exchange rate between the two currencies to dictate the outcome of the bet. If there are any changes in the exchange rate between the currencies, you will receive a payment with the change being taken into consideration. If you are caught spread betting in UK markets whilst you are still a US citizen, you will be subjected to financial investigation. According to data provided by the FCA, 82% of people who took part in spreading betting lost money, and 18% either broke even or made money. It is a risky strategy to rely upon, but you can make a substantial amount of money if you do your research and prepare your bets well. To be successful in spread betting trading:
Use the right techniques for the right markets at the right time Learn as much as you can about the whole trading industry Invest in a good trading platform Never invest more than you can afford to lose Remember your long and short-term financial goals when making any trade or investment
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal capital.
