Intelligent Ways of using a Spread Bet


Q: Show me some intelligent ways of using a spread bet...

A: Erm...where shall I start. Apart from using spread betting to save taxes and short shares in a bear market and using margins to boost gains you can use spread betting for hedging purposes or to open a pairs trade and profit from the relative performance of one company in relation to another in the same sector. Other possible ways -:

 
  1. For tax planning purposes I sometimes want to sell a share to realise a profit or loss before the end of the tax year but I do not want to give up my interest in the growth prospects of the company. I would therefore sell the share, realising the gain/loss and then buy it back through a spread bet. After 30 days I can close the spread bet and repurchase the share. i.e. in this case you would be using spread betting as a substitute for holding the share. Of course you could have taken an interest in the share through a spread bet in the first place but that is another story.
  2. Use spread betting as a tax efficient tool to convert your taxable profits at a futures broker into tax free gains by taking an exactly opposite position with a spread bet. You can then exit both positions when the futures moves against your position at the broker and thereby the profits are transferred to the spread betting account. Of course you will have to bear the cost of spreads on both sides but that would amount to about 1%. There is a risk that your futures positions will continue increasing in value while your spread betting positions might continue losing value but you would have to be really unlucky to get every trade right with the direct access broker and wrong at the spread betting provider. But of course you could calculate a stop loss level as to when you would close down your spread betting positions contra futures positions taxable value. I know a couple of traders, who have direct access and spread betting accounts and utilise this tax hedging strategy.
  3. Another possible reason for using spread betting is to hedge an option position I hold in a quoted company. In the build up to the exercise date of the options I would sometimes take the view that the share price had reached a price at which I would be happy to sell the shares but I could not sell as the option had not yet been exercised. I would therefore go short by taking out a spread bet and on exercise of the option I would close the spread bet and sell the shares. This gave me a locked in price.
  4. Another way to trade would be to use the tilted-index strategy. Suppose you are thinking of opening a £100,000 FTSE position. Then choose, say, the 5 names that you think will underperform, and open short positions in those, and then open up longs in the 5 you think will outperform. If you're good you get the beta of the index performance with the alpha of your own better-than-the-market analysis. Mainstream pension funds and insurance companies, previously barred by regulation or internal policy from going short, have started launching funds using the 130/30 strategy - which combines a long-only portfolio with a 30 per cent long/30 per cent short portfolio - produces alpha more efficiently. Not only does it enable managers to profit form stocks moving down as well as up but it counters the biggest objection to short selling - which is that in the long run the stock market tends to move up so it is better to be fully invested in the market. With a 130/30 strategy you are effectively 100 per cent exposed to stocks.
  5. Some traders simply use spreadbetting as a speculatory tool. Traders commonly use spread betting for profiting from range-bound markets buying near the bottom of the range and selling near the top of the range. Using this strategy you might opt to place your stop loss just below the bottom of the range or just below the top, depending on whether you are going long or short. If you are willing to risk 10 points in order to make 20 points, you should set the the levels of the stop losses accordingly.

 ...Continues here - FTSE Futures and Market Trading Times


Hope that answers some of your questions but feel free to send me queries, comments or concerns at traderATfinancial-spread-betting.com or by filling in the form below :-)

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