A: That's called pairing and is the only way to trade forex...
e.g. dollar V pound is called cable... you trade dollar and euro... etc... i.e. if you are long on the pound you are short on the dollar...
For instance at present the FTSE 250 (trading at 15 times next year's projected earnings) looks the more expensive index when compared to the FTSE 100 index (which has remained stuck at 12 times earnings).
So if the long-run relationship between the two indices is to be re-established the FTSE 100 will have to outperform the FTSE 250 in the future. Thereby you can place a spread bet on the blue-chip index rising and at the same time place an opposite spread bet that the FTSE 250 index will decline. If you are right about the relative performance, the profit from one bet will be bigger than the loss from the other and you will book a net gain.
What is great about this trade is that irrelevant of whether the market as a whole goes up or down you still stand to gain from the relative performance.
Of course you still need to make sure that your exposure is the same on both bets, so if you bet £25 a point on the FTSE 100 at 6,795 you need to offset it with a bet of only £14 a point on the FTSE 250 at 12,126. Imagine both indices moving by 10pc either way and you'll see how this works.
As the spread bets are balanced it doesn't matter whether the FTSE moves up or down. An equal percentage rise or fall in both the FTSE 100 and the FTSE 250 leaves you with a profit on one trade and a loss on the other that cancel each other out. It is what's called a 'market neutral' strategy. Your net gain or loss comes purely from the relative performance of the two indices.
Market neutral is doesn't mean that this technique is risk free. Even though it doesn't affect you whether the market rises or falls you can still lose money if you are wrong and the FTSE 250 continues to outperform the FTSE 100, in either a falling or rising market.
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A: It's an interesting question, but one thing to perhaps think about is not getting *too* hung up on the news. Bloomberg will provide you with advance warning of the important stuff - interest rate announcements, CPI figures, trade balances and the like. If your technical analysis is reasonably decent, and you're aware of what is happening in the market, you'll likely be fine. Knowing every minute detail of every bit of news, and how it might relate to what you're seeing on the screen will confuse the hell out of you - it sure did me.
If you're looking to 'trade the news', again, the events that will likely precipitate movement large enough to get a decent profit from will be known about beforehand, in the most part.
The only other exceptions are 'force majeure' incidents like 9/11 or 7/7 where every market goes nuts, and emergency action is needed to secure your positions - but these cannot (obviously) be predicted.
Add to that the fact that the market sometimes just behaves like an @rse regardless of where it should be going, and I feel you may be best getting the important news well diarized, Taking lots, and letting the market do its own thing!
And remember to check our financial directory
A: Yes. Closing will sometimes be labelled as such - particularly when closing the entire bet by hitting a 'close' button, but most often shows up as simply a bet placed in the opposite direction (at whatever is latest quote) and can either close (cash in) the whole of the original bet, or part of it, or can indeed be at a bigger stake than the original bet - thereby reversing its direction.
Eg: Say you have a £12 per point up bet on Tesco (TSCO).
You can simply close it - anytime - by hitting the 'close' button if there is one - or by placing a 'sell' bet at the same stake of £12pp (per point).
Or you could place a 'sell' bet at say £4pp, cashing in that portion of the bet at the current quote and leaving you with an ongoing £8pp up bet at the original price. Or if you think the share price is about to swing the other way, you could instead place a 'sell' bet at say £20pp, which would cash in your original £12pp up bet and also open (at current quoted price) a £8pp down bet.
I quite frequently close my bets in stages. If I feel the share price has probably moved as far my way as it's likely to - but hasn't yet reversed - I might close say four fifths of the stake, and let the remaining reduced stake run on a little longer - just in case my exit was earlier than strictly necessary. Then close that final portion when the price is more clearly turning bad.
You can do this button pushing as frequently as you want. At times when watching for a stock to start moving, I have opened at £2pp - just to be onboard early - and added in several stages up to whatever maximum stake.
A: In financial spread betting, if a market gaps through a stop level, you will be filled at the next best price after your stop was triggered. This means you will still be stopped out if the market gaps from a level above your stop to a level below without ever having a trade done at your exact stop price. Naturally, in fast or thin markets, slippage will occur, and this is the case with any spread betting firm.
A: I'm afraid futures move quite wildly out of hours...
The only logical protection is:
A: The percentage spread they add on top of market spread is a published fixed percentage - and can thus be calculated in advance of requesting a quote - (e.g., Cantor add 0.6% of share price, on top of current market spread, for a near quarter bet, and 0.8% on a far quarter bet), so they are not going to get away with quoting an excessive spread without being challenged.
The position of the quote (i.e. where it is centered in relation to where current market price now is) is something they will be forever shifting, in line with future expectations for each stock. That is normal. If the stock price is regularly climbing fast, the quote will likely be further ahead of current price than if the stock is climbing less fast, and will likewise be skewed to the downside when the stock is falling if such falls look like continuing in a way that shows in the futures market for that stock or its sector.
Again, this is normal.
They are free to position the quote wherever they wish and free to move it wherever they wish, whenever. The judgment they exercise in doing so will likely include logarithmic formulae relating to both the relevant futures market and to the weight of betting. If they wish to also incorporate a degree of craftiness specific to a particular bet, and had the time to do so, they are free to do that too although that might then open up arbitrage opportunities 
A: For a stock trading at €1, the spread you might be offered could be: .98 - €1.02
So you can buy at 1.02 and sell at .98 which means the spread has to move to 1.02 - 1.06 before you breakeven on a buy. If you were to have a stop loss at .97 and markets are as likely to move up a cent as down a cent in the short term then you have about a one in five chance of doubling your money, additionally most spread betting sites don't guarantee your stop loss will kick in at the stop loss price, its on a best efforts basis (this is known as slippage).
A: The caution is the speed and especially true of the big pairs. I freely admit to reading the chart spot on for about 80% - 90% of the time and then losing on the trade because of the whipsaws, you HAVE to have large margins and take profits frequently and losses are less that way... but we all trade currencies with a bit of fear... that's a large amount of dosh you are handling! It IS exciting and it can be VERY rewarding - but its dreadful for the stress levels at times!
In short... trading currency is dangerous... should have a health warning on the trading ticket!
A: Sorry that happened but you need to have a trade plan...
I met a guy once at a free seminar who told me about his trade plan and I have to admit that since applying it to my spreadbets, I lose less and make more. It's truly simple - take your trading pot, that is to say the amount of money, hypothetical or real, that you intend to use for spreadbetting and then plan to lose no more than 3% of that pot on any one trade. And never be more than 15% invested at any one time.
Let's say it's a 5K account...so that's £150 risk on every trade and you might have open up to 5 trades at one time.. You could then lose all 5, safe in the knowledge that you will live to fight another day.
So take a look at that £151 in relation to the size of your pot and go from there, do not just cross your fingers and hope it comes good.
If you don't mind me saying so, there is a danger in assuming that a longer timeframe means plenty more time to come good. With leveraged positions that logic is best avoided in my opinion, as losses can grow dramatically fast (ten times faster than with shareholdings) and quickly swamp your account. My own approach in such situations - unless there is genuinely some factor which will (not might) bring things quickly back into profit, is to reduce my stake immediately. You can always increase it again later.
Comment by Dan; I'm very sceptical of stop losses, either a company is good or not.
I have a lot of sympathy for that view Dan, but then let us assume that you have a sizeable holding in a mining company. They have made some good strikes, the analysts' results look very encouraging, the smelters and concentrators are available, the infrastructure is in place and the market for your metal is strong.
Your mining company then decided to make a cash call on investors to fund the commercial extraction - after several months all is going well then kapok Mother Nature steps in and deposits a shed full of rain on the mine site, such as the five foot of rain that fell on Washington in 24 hours!! As a result, flooding affects several working faces - production is stopped, That impacts on the bottom line and earnings are revised downwards - kapok your mining stock falls 50% or more, only to find that you have a labour dispute on your hands. Then, I would feel happier with a stop loss, simply to limit the downside!
A great deal of money was lost in the last big market crash as some investors believed that the shares were still sound and kept on holding, even though the market kept on falling, so stop-losses were not operated.
A: Sorry to hear that you've not had a good time over the last few weeks. It hasn't been easy, has it? When to sell? Depends on your shares. Important to get rid of the real rubbish at times like this but the good stuff has a habit of bouncing back.
Most people start trading the stockmarket when it's going up (no surprise really) and it's easy to be lulled into the sense that it's a cash machine. You are right that everyone has to go through the learning curve, I did it 'in style' after the dot.com. I even managed to do it again in May 2006.
The question of when to sell is the hardest of all because greed takes over and we believe that it will all go up and we will make even more than we did before. Then, when the greed subsides we just hope that we can get back the profit we had before and when that hope subsides we tell ourselves that 'just' break-even will do. Some even convince themselves that a 10% or greater loss will do.
It's the 'n' factor. We hopefully buy at the bottom left of the 'n' and we're happy to see our investment rise. It starts to come off but we're not bothered because it will go up again, or so we hope. The bottom right of the 'n' is the time many people elect to sell but often we convince ourselves that it's ok for it to go down a little bit more because it's a 'great share' or 'the market will recover. Soon break-even starts to look like a bargain and at some point we throw in the towel for a loss.
I'm going to pick on VLK (one of my fav picks as it's a great example of what I'm talking about and I know TNT will forgive me.
I went long on VLK around 80p, a bid rumour followed. It looked good to me so I jumped on board, jumping off in stages from the top for profits broadly in the range of 6%, 4% and 2% (they were spreadbets but I price gains as though I had held the stock). Had I not sold when I did I would now be faced with a small loss. So what now? Do I take my small loss, do I wait to see if it goes lower or higher, does greed (or is it fear) keep me in the trade? No answers here, just questions. A chart will follow and it shows just how hard trading can be and how easy it is to turn a profit into a loss.
A buy and hold investor will say that it's a long end-game and that these small movements don't matter (and that would be correct) but over a much longer period than my chart will show, the buy and hold sat and watched his investment in VLK go from a high of 110 back down to the seventies. However, the buy and hold investor knows what he's doing and can afford these 'paper losses' (for that's what losing a profit is) and as he bought VLK far lower he's still well in profit. This is not a criticism of his strategy, which is based on his belief in the company, it's just that I wonder whether people who are starting out should bank (at least some) profits a little more regularly than someone like a buy and hold investor who has already built up a substantial pot of money.
All I can say is do not be too stubborn to take the hit YOU WILL NOT BEAT THE MARKET!!!!!!!!!!!! That is one lesson I learnt years ago and it cost me big time. But I now feel I am a better investor/trader for it. For instance this time I had no hesitation when the market looked soapy to ditch the lot and that I did at 10.00am. Yes you can argue that tomorrow could be a bounce back but I like to sleep and when you trade at 5-10 times margin that can be a stressful experience. You could always buy the positions back when you feel the market is right.
Stop losses are important:
"If it turns out that the company is doing well and the shares remain attractive there will be an opportunity to repurchase them. I find that this 'insurance policy' approach, although it can sometimes seem illogical, pays dividends in the long term by taking investors out of shares early in any potential decline. The risk of hanging on is that the shares continue falling and the investor eventually sells in disgust at a much lower price that may be close to the bottom of the decline.
This process of selling at the bottom is known to professional investors as capitulation. Investors hang on and hang on hoping for recovery. When they finally decide that the shares are never going to recover they often all sell together driving the shares to what may be their ultimate low point. When this happens to shares generally it can lead to a high volume climactic sell-off that often marks the low point of bear markets. A classic buy signal comes when after an extended decline shares open massively lower on high volume but end the day higher as bargain hunters are drawn in as buyers."
Lastly, another strategy rather than a stop loss is to sell the option on a stock to get out of a losing position although you can only do that with US stocks.
A: Certain price chart patterns (together with various arithmetic data including the volume of participants, and ratio of price to sales/profits/debt/peers/etc) can sometimes usefully show if a recently risen price is overstretched, or if a sharply fallen one can be expected to bounce. Not with certainty, but with sufficient probability to justify either caution or action. Those various signals (which can be automated in line with ones own criteria using software costing more than I'm prepared to pay) combined with market news and known proximity of key dates (imminent results etc), can all contribute to deciding whether I should remain exposed or should bank (some or all) profits.
If a price rise that has taken me into profit appears to be weakening (e.g. is no longer underscored by any real volume of participants, or is contradicting certain other indicators specific to that stock), then yes there are certain percentage falls (from each new high) that will prompt me to reduce or exit a position. They differ from stock to stock (stocks have personalities; some might deviate say 10% either side of a trend without letting go the trend, so setting a target within that percentage would force an unnecessary exit. With others the same 10% deviation might trigger alarm bells. So some assessment of past chart patterns is needed before deciding in advance what leeway to allow).
An advantage using spread bets rather than actual equity purchases, is that you can make phased exits without being charged extra broker fees. This can have tremendous psychological value. I could for instance determine beforehand that I will sell say one third on a 5% price fall, another third at 10% down, and only sell the remainder if the price is 15% down. I can thereby feel that I have given the chance to that stock to rebound. Whereas with an actual shareholding the avoidance of multiple brokerage fees means setting a fixed level at which I sell the lot or don't - and that "all or nothing" moment is where many investors get stressed and come unstuck by feeling they really ought to give it "one more day" or whatever, only to then find themselves tipped into a sharp fall that is triggered by other market participants who did sell. There are occasions where I will phase my way into or out of a particular bet in £1pp increments. (£1 per point is the equivalent of buying or selling 100 shares, which is too small an increment to be viable if repeatedly applied to a real shareholding).
A: Don't spread bet gold prices - the spread is too wide...you'll go bust.
The deposit needed to cover the worst case scenario? Whatever your losses would be if they started giving away gold free of charge. Of course they could potentially start paying you to take the metal, in which case, your potential losses are unlimited. This did happen
for gas at one point, but probably won't happen for gold!
I don't suggest you to trade spread bets on gold however if you really have to I can tell you that Finspreads offer a 12 point spread, bet per 0.1 movement of the metal with margin 200. Suppose you put the minimum bet of £0.50 per point you would need to maintain a balance of £100 in your account at all times, the market maker will ask for a margin call whenever this amount is breached and if this is not made immediately they will close your trade and ask you to make good the loss.
A: From what I can see the biggest problem with this method of investing is people's lack of understanding. When the example of investing in BOI states that you can buy €10,000 of the stock with a €2,000 stake - people get a rush of blood and put on as much as they have (say €10,000 - which is the same as buying €50,000). If the stock drops by 10% they loose 5,000! Suddenly it's a crap system because you invested 10k and a 10% drop in the stock results in a loss of half your money!
In reality you should use it as a more efficient use of your 10k, and use it as such:
Whereas if you go the stockbroker method - the costs are way higher (transaction charges/government charges/possible CGT on profits) and your 10k is gone until you sell up! With spread betting you have a lot to play with!
I used to measure losses and gains in the markets in terms of white goods. 'Damn, I just blew a fridge.' 'Whoopee, I just made a flat screen.' It is a good technique for keeping you in touch with what's really going on on that spreadsheet. In these volatile times, it has been forced on me to think now of the sharemarket in terms of cars. One of my colleagues lost a Club Sport R8 HSV Holden Commodore on Tuesday. One of my clients lost a Jaguar XK Series. 'A new one?' I asked. 'Fully optioned,' he replied.
A: Here's a maths test. Which is greater:
0.25% on £5,000 or 1.5% on £1,000
Let me explain it with an analogy:
Imagine you and your friend walk into Curry's and you both see a shiny new HD 42" plasma TV that you both want to buy. You ask the salesman how much it costs and he types a few keystrokes on his computer and says to you, "For you it will be £500" then turns to your friend and says, "For you it will be "£100". You ask him why he is charging you more for the TV and he replies, "I am not. You are both paying exactly the same amount, 20% of what you have in your bank account". This wouldn't be fair would it? In other words, you expect to get the same quantity of goods and services for your money as anyone else, £500 is £500 irrespective of the proportion of wealth it represents.
Let me explain it with a Hypothetical:
Now, take 2 people (A&B) of equal aptitude who wish to start trading. They are both told that they should only risk 1% of their capital when they begin, i.e./ (Start small). So person A has saved up £5000 to put into his trading account whereas person B, who has saved for longer, has £50,000 to put into his trading account. They are both equally inexperienced. Would it be fair that Trader A only risks a max of £50/trade when Trader B risks £500/trade simply because he has more available to lose?
Now let me explain it with a real world example based on myself, no actors were used and no animals were harmed in this story.
Recently I saw a good opportunity to go long on a particular stock. I decided to do via my spread betting account. The stock was worth around £4.50 and I decide to bet £2/point. This gave me the equivalent of 200 shares and I had to put down a deposit factor of 10% of this value - 10% x (200 x £4.50) = £90. Now, I can easily afford £90 and I can easily afford to lose £90...but I don't have £9000 in my account, nowhere near that amount!! No, to me, £90 is £90 and as long as I could afford it, I took the trade. It was a successful trade that returned nearly 100% of my initial risk of £90.
Another example: Last year I saw a good opportunity to go long on the FTSE. I did it with a CFD. This was a £2/point CFD that required a £400 deposit. I deposited £800 into the account even though I would cut my losses at a specific STOP level, which varied, but wouldn't exceed my initial deposit. Again, this was a successful trade and I made 160% of my initial risk. If I followed the 1% rule on this trade it means I would have needed...£40,000 in my account!! Ridiculous!!
So what am I saying? The idea isn't to have so much money in your account that it allows you to trade with stops so wide they won't get hit as often because that is financial suicide! The idea is to improve your proficiency so that your trades show a profit almost from the time that you enter them. That is the one and only goal! Trades that get stopped by the market which then rebounds occur regularly. I can assure you, having the mindset that wider stops will prevent this from happening is financially disastrous.
I think Jesse Livermore summed it up perfectly with these two rules:
The highest profits are made in trades that show a profit right from the start.
No trading rules will deliver a profit 100 percent of the time.
I wanted to add one last thing that a very clever Engineer once said to me:
'An Engineer can do with 20p what any idiot can do with £1'
I suppose you can replace the word 'Engineer' with 'Trader' but I don't think an idiot would last very long in the markets.
A: The charts are in real time - it's only on the demo account where they are delayed.
A: I find Level 2 useful for several things 1) Examining the strength behind a bid 2) Looking at the order book 3) Examining the "real" bid/offer spread.
Before I buy I find it useful to double check the range of prices offered by the Market Makers and the number offering at each price. Normally, the more Market Makers at a specific price the more chance of that price holding.
I'll often check the order book to see if there are any large sells waiting. I find that they can dampen enthusiasm for buying. Obviously you need to be wary as this is often used as a strategy to control the price by fake orders being placed.
The offer/bid price on a share can look quite small but may be the results of a range of prices offered by the MMs. If all the MMs start offering the same prices that spread can suddenly look awfully large.
I suppose I look at many other factors when examining Level 2, but most are just variations of the above 3 things. I find that the closer I get to FTSE100 companies the more tricks are played by MMs and the more my inexperience begins to show, but I am learning...
I think Level 2 has to be learnt in two stages. Stage one is getting to grips with the mechanics of it. Stage two is the much harder interpreting motives.
Level 2 serves each type of stock in a different way. The way in which it is useful does vary. Below I mention four different stock classificatons. The way one might utilize Level 2 is different in each of those different situations. There is no shortage of basic L2 education on the web - but it's the stuff beyond the basics that's probably most useful.
A good way for anyone viewing Level 2 anew, and who only has a single free day in which to do so, is to focus on just four stocks. A fast moving SETS stock, a slower moving SETS stock, a SETS/Market Makers hybrid, and a SEAQ (i.e. Market Makers only) stock. But don't study them in that order.
The first stock should be a sets-only stock from somewhere in the upper half of the FTSE250 (or bottom end of FTSE100), where the action is frequent enough to tell you something, but slow enough to make sense of.
The second stock should be a hybrid sets/mm stock, so you get a chance to see how the MMs and the non-MM players interact. Again it needs to be one where the action is brisk enough to be meaningful but slow enough to take onboard. (JPR is one I'm currently watching - but something a little brisker would be better).
The third stock should be a sets-only one from the upper end of the FTSE100, where the action is too fast to learn much from, but gives a useful indication of how rapidly volumes swing around between the buy side and the sell side, and the way in which that ties in with imminent price directions.
The fourth should be a SEAQ stock (i.e. MMs only). Again this needs to be one that is busy enough to be almost constantly active. In that case the aim is to see how MM price changes trigger trades, and how trades in turn trigger MM price changes.
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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