Spread Betting Shares | Shares Betting

One of the big draws of spread betting is easy access to global share markets. Most firms will offer you the chance to invest your hard earned cash in major UK/US and eurozone shares allowing you to profit from international market changes.

The shares that you can now trade are vast and varied. All the FTSE100/250 is there, most major and some minor US shares including NASDAQ and Tech Shares. The good news about being able to trade individual shares is that they are no different to trading the Indices. The gearing is the same throughout all the products available to you, options do however differ but I won’t cover those here as they are very complex.

Spread betting on Stocks by Spreadex

The big difference between many firms now is whether they allow you to bet on AIM-listed shares. AIM-listed shares are effectively penny stocks, only a couple of firms offer these at the minute. But beware trading on AIM stocks is very risky business.

There are plenty of benefits trading in shares let’s use Microsoft (MSFT) as an example. These shares are currently in the region $55.00 per share, by share I mean standard share certificate, owning part of the company. However most people who buy shares do so as a long term investment of 2 to 3 years, and look to make a profit over that period. You would need a great deal of money to buy even just 100 shares. $5,500 in fact. Now if we bought the real share we’d have to pay this $5,500 and be out of pocket of $5,500 and now if the share rose up 10% to $60.50 and we sold we would get $6050.00 that is great. BUT! We would have to pay TAX on the profit as its classed as income. Also, we would have to pay the broker a fee to buy and to sell, plus the $5,500 we put in isn’t very liquid.

The advantage with spread betting is that trade sizes can be very small – and you won’t be penalized with a flat fee per trade making it well possible to deal in just 50 shares which allows for the gradual build-up of trades. This is more so with the fact that there is no stamp duty or commission to pay.

Whereas if we opened a trade, we don’t own the share and we could have made anything from 1p to £500 per 0.01p price movement. At £1 trade going long we would have made the same profit, but would have kept it all as financial spread betting is Tax Free and we don’t pay our Financial Bookmaker. Plus, we’re risking far less, not putting thousands of pounds into one share, our position is highly fluid and can easily be closed. Finally, we could have geared up our position by adding more to the trade as it went up. We could have started at £1 per point then moved to £10 easily and instead of making $550 we would have made $5,500 instead – for the same amount of work.

There are three things that I believe is essential to look for when considering shares trading.

  • Volatility: This is the tendency of some stocks moving sharper and faster than others. Here we can introduce the term ‘Mean Reversion’. Volatility tends to be mean reverting, meaning that the level of volatility in an instrument fluctuates-after a lot of movement the instrument is likely to have a more stable period and vice versa, then the volatility tends to return to the historic average. To be honest, I prefer the higher volatility instruments for spread betting because they are on average more likely to move further quicker
  • Liquidity: This basically means a share is heavily traded and transparent. It is safer betting on instruments where the underlying instrument has good liquidity. There is a big danger in investing in assets with little liquidity because of the difficulty in getting out of trades when you need to exit in a hurry. Let#s suppose, you are long of a small cap stock and it moves against you. The next step for you here is to get out. Problem arises when everyone else trading that stock on that same day has the same idea as you. You will then see that there would be a sharp drop in value of this stock. On a whole, there is plenty of liquidity in blue chip shares but also in indices and also the major currencies.
  • Spread: Personally, I prefer to deal in the bigger, more liquid shares as they tend to have tighter spreads. The bigger the spread, the more success we need with our bets just to reach breakeven.
  • Not forgetting to mention that the biggest difference between trading in REAL shares and owning a part of that company and trading in financial spread betting, is that with financial spread betting, we can make money when the price of ANY share, indices and many other financial products go DOWN. It does make me think why people really look to make money from shares in the short term.

    My changing currencies may confuse some of you. My local currency is the GBP £, but the example I gave was Microsoft who are American and therefore quoted on the S&P500 (Standard & Poor’s – another Index). You don’t have to worry too much about trading in differing currencies. Everything is worked out for you. When you open most Financial Bookmaker accounts, you can decide the currency you wish to have your account shown in and therefore be trading in. I personally use GBP £ but it doesn’t matter if you choose the USD $ the AUS $ or whichever currency you feel comfortable trading in.

    Everyone has to start somewhere, so here are some quick tips for spread betting beginners to help you maximize your profits and minimise your losses trading individual shares.

    • Research: Before you place a bet do your home work. You may find a spike in the share price or the gods may look favourably upon you from time-to-time. But for long term success do you research and understand completely what you are doing before departing with your cash.
    • You will lose: Everyone loses occasionally, learn from these loses and alter your strategy and decision making process so you won’t make these mistakes again. Consider using stop loses to help you minimise your exposure. Decided upon your maximum exposure before placing the trade, during the heat of the moment you may find that you get carried away with watching the market tick away in the wrong direction.
    • Familiarity: Don’t try betting with stock you know nothing about, stick with markets you know and understand. It does get boring placing bets upon the same old stock but the goal is to make profit. When you have some knowledge of the markets only then should you move on.
    • Keep some back: When you make some profit, consider withdrawing your initial capital to allow you to continue to spread bet even if you have a bad spell – Don’t get disheartened and get back on that horse.

    One other thing I feel I need to mention. Within this spread betting guide, I tend to concentrate on the FTSE100 to 350 and also the US markets. Now before you start worrying. It makes no difference where you live what trades you make, whether they are FTSE, DJIA, and NIKKEI. They are all just trades, it doesn’t matter which sector, indices or share you or I concentrate on. Therefore you will notice within this course I will be looking at the FTSE, however, I do make frequent visits into the S&P500 and the NIKKEI. Basically, don’t be alarmed if I keep focusing on the FTSE100 to S&P500. I try and keep an eye on as much as possible, but it makes sense to spot trends in the FTSE or S&P as these are the ones I know the most about.

    The other advantage on individual share prices is that there is more information available to you than would be on any other trade. Simple when you think about it. As all the others are either Indices (a massive collective of companies), Sectors (companies within a particular industry grouped together), or commodities (Gold, wheat, sugar etc.) and so on.

    When trading shares make sure you have done your research. Remember, if the news has been out for any length of time, the share price will most likely have adjusted. Many firms offer you a list of when companies are announcing profits, have scheduled press releases and other items that can have a drastic impact on their prices. Get your bets on before these announcements and research other sectors that will influence the company’s profits. A great example is that Britvic shares plummeted after the announced their profits had been slashed due to rising sugar prices.

    Granted, our main concern is with Technical Analysis, therefore we rely mostly on data supplied in chart form. It is always nice to look at the company’s financial data, their profits and maybe even some of their products on the company’s own website. Plus, companies create news from press releases etc. Whereas Indices only make news if they reach a high or low and the same goes for sectors, as these are parts of an Index. Commodities make news only when there is price rises in Oil, gold etc. There are charts obviously but little news.

    You have to remember and it is quite easy to forget, that commodities and Indices are traded as Futures contracts, not real Futures contracts but based on in terms of pricing and contract periods. So these are based heavily on greed and psychology – traders constantly second guessing where that market is going to go. If one company goes belly up in the FTSE, it won’t have a massive effect on the overall Index. This greed and fear is what fuels the Index Future and that is why they are so volatile and fluctuate a great deal. Shares on the other hand tend not to fluctuate as wildly and it’s easier to trade, in my opinion, using technical analysis, there is a reassurance that the share will gently follow the trend in the chart. Unlike an index, which tends to swing more and therefore there is greater risk of getting “Stopped Out”. All in all, I prefer individual shares to trade, for their ease in finding information, their relative stability in following a trend and the fact that I can easily get a gut feeling about the company, based upon what we have already surmised.

    If you choose to bet £10 a point, this represents the same market exposure as buying 1000 shares in the company. £1 / point = 100 shares, £10 / point = 1000 shares, £100 / point = 10000 shares and so on…

    Therefore trading in singular shares has become one of the most common products within financial spread betting, because of the ease in gathering information, the ability to quickly gauge how that share is performing and simply because that most of us are familiar with the companies quoted, as they are house hold names.

    A quick note about US shares. US stocks do tend to swing much more than those on the FTSE. This is simply because of the high volume of trades, which creates their more volatile nature. There is a great deal of money that can be made from trading US stocks, and they are good for spotting ‘bounces’ as their highly volatile nature makes them prone to swings in fortunes. It’s not unheard of for a stock in the US markets to drop several hundred or more points in one day. However, to trade the US markets you will need more margin, deposit with your bookmaker, to cover the trades. Because of the nature of the US markets and the fact that they do indeed swing much more than that of the UK or EU markets, the bookmaker, broker, financial company call them what you will, will ask for a higher amount of margin to cover the trade.

    Personally, I feel that if you’re just starting out with spread betting and you have never done anything like this before, it would be advisable to start of with just placing UK trades to begin with, then moving onto more volatile forms of trading – US stocks, Commodities and the FX markets as your experience grows.

    Right let’s move on. I gave an example previously of purchasing an actual share within a company – remember this is actually owning a fraction of the company. Perhaps the most important, or key aspect of this type of trade and the largest negative point associated with it is; if the share drops, so do your profits. There is no possible way to trade in real shares and make money when the markets fall, much like they have in the past and will do over and over again in cycles – as an aside; for those interested in spotting these cycles in markets there is an additional tutorial on the student website in Elliott Wave analysis, it’s well worth a look.

    Whereas with financial spread betting, we are in the incredible position to benefit greatly when markets fall. In fact as a trader in financial spreads, we are in the excellent position of taking advantage of negative markets (going SHORT) and making money quicker than we could from a rising market. Why? Because shares fall quicker than they do when going up. Think about that for a moment.

    Why do shares fall faster going DOWN and go UP slower? When shares go up, it involves people, institutions actually physically spending money, money is limited, even in huge institutions. Therefore, the share can rise from buying (supply & demand) and continue to do so until the money dries up or simply no one wants to buy. This is slow, sometimes there are panic purchases which cause ‘spikes’ or ‘breaks’ in charts (where the price has shot up so quickly that there is a break or spike in the chart) but money, interest, demand runs out.

    However when the share drops. You have the entire shareholder stake at risk. There are the people who have recently bought the share and the people and institutions that have had the share months, years and sometimes decades, who maybe selling. This is why shares fall quicker. Selling causes panic, word spreads around and before you know it the share price has fallen through the floor. Mini versions of this happen everyday, some greater than others. More so in fact in US stocks.

    To those that trade shares, this is a sad inevitable fact that you lose money quite quickly when shares fall. Spread traders on the other hand can’t wait for shares to fall and that is part of the reason why spread traders have had a good couple of years recently. The Dot Com crash and credit crunch crisis made a number of spread traders millionaires, whilst it left many share dealers broke and crying in their beer.

    However, and this is another reason why most people involved with financial spread betting lose money. Most traders within Financial Spreads, never trade going Short. Yet this is the most profitable trade you can make. You will make more money trading short than long. Obviously prevailing markets have a strong say in what you do and I for one whilst doing my analysis will aim to have a balanced SHORT & LONG trades view for you to monitor.

    Sadly though most traders only trade going LONG! Why? It’s down to psychology. For years we are taught that you can only make profits from shares if they go up, most traders think when trading in financial spreads that they physically own something when they don’t. I am not saying they believe they actually own a part of the company, but the underlying psychology suggests to the individual that they have a real stake and therefore should seek stocks that are rising. A lot of the time the people that get involved with financial spread betting have come from a “purchase & hold” share buying background, so they are conditioned to only pay attention to rising markets. It’s a way of thinking, we are taught that from a early age you can only make money if something increases in value, not drops.

    They also tend to use the same strategy that may have worked well in a rising market with actual share purchases, but may not on the other hand work that well with open financial spread trades.

    Now I am not telling you to always trade SHORT. I want you to learn that you can trade going LONG or SHORT. The key point is that you are aware that there are other means to making profit and they don’t require that trades or stocks are going up.

    When trading on shares you will be offered the choice of daily rolling, near, next and far futures. Don’t be worried if the sell and buy price are in decimal, it is just the way the spread is wrapped around the actual share price.

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