Simon Smith – Betting on House Prices
Simon Smith takes risky but informed punts on how much house average prices, supplied by the HBOS or the Land Registry, will rise or fall in three, six or 12 months’ time. He is not alone, either. A growing number of young people are turning to spread betting on property prices, either because of disillusionment with a turbulent stock market or with the real world of bricks-and-mortar investment.
So, is it possible to make money out of property without the boring necessity of actually buying a house, paying stamp duty or dealing with oleaginous estate agents? The answer is yes: by betting on the movements of the British housing market.
Spread betting, as it is known, has proved fabulously lucrative for players such as Simon Smith, 33, who makes rather a good living by sitting in his office in Leeds working out what is going to happen to house prices – and placing his money accordingly.
Smith began for a bit of fun four years ago when property spread betting was in its infancy, and proved so adept at predicting the swings in the market that he packed in the day job as an IT systems analyst at Leeds Metropolitan University. Remember the property crash that never happened (or, at least, has not happened yet)? Smith bet against the likelihood of a nose dive and cleaned up.
“I’m surprised more people don’t do it, given how much spread betting takes place in this country and our national obsession with house prices,” he says. “But maybe most people have already taken a huge gamble on the market, with their own house.”
So how does Smith do it? Three or four times a week, he logs on and makes trades on the basis of where he thinks house prices, in a variety of markets, will be at a given quarterly date in the future. He sets both an upper and lower price, thus providing the “spread” for others to bet against. Cantor Spreadfair, (editor comment: Spreadfair is now defunct but try Befair), the company Smith uses, takes bets on the average London house price and the average UK house price.
When the given date comes around, the Halifax quarterly house price survey is used as the official indication of where the market is. Smith gives an example of how it works. “The current spread that I have posted for the average London house in September 2007 is £297,500-£300,000,” he says. “Now if the Halifax index comes out in September and reveals that house prices have gone up above the £300,000 mark, and if you were betting up, you will have made money. But if you had been betting up, and the market is still somewhere below £297,500, then you would have lost.”
His best month? “December 2003. It was a point at which many people were expecting a crash. However, I thought that the market wouldn’t go down very much. And bet on it.”
There was indeed no crash. “It’s about understanding the perceptions on the housing market, against what is likely to happen,” Smith adds. “I have got it wrong sometimes and lost money.”
Not very often, however. Smith is coy about how much he has made, but it has been enough to pay off his mortgage. In fact, he has sold off most of his buy-to-let portfolio, keeping just two properties that he rents out. Is he a gambling man at heart? Not really. “I’ve always been good at maths. And I enjoy taking calculated risks.”
Are there many other Simon Smiths out there? Not that many. Andrew Garrood, co-managing director of Cantor Index, which runs Cantor Spreadfair, says property spread betting is still a “nascent” industry.
Part of the problem with gambling on house prices like this is that the time span involved is short; money is made or lost much more rapidly than by investing in actual bricks and mortar. It is also not for the faint-hearted: if things go wrong, they can go very wrong indeed, and, unlike with other more conventional forms of gambling, you can end up losing more than your initial stake – making the whole thing somewhat akin to financial Russian roulette.
“Spread betting appeals to people wishing to carry out short-term trading, and who want to make a quick win from the property market – without the need to put up capital,” says Justin Urquhart Stewart who runs Seven Investment Management, a company that provides financial advice to high net-worth individuals.
“However, because your loss is calculated by the difference between your estimate and the reality of the prices, you can end up losing a lot more than your stake if prices move against you. I think spread betting on property is for professional speculators only.”
But if the market were to take off, could you enter a remarkable world where abstract betting on house prices was bigger than, and even potentially affected, the housing market itself? “Yes,” says Rob Thomas, senior policy advisor at the Council of Mortgage Lenders. “But we are nowhere near that now.”
There are other ways, of course, to make money in property without forking out for a building. You can buy shares or invest in real-estate investment trusts. But if you consider yourself a true property anorak with a healthy obsession with the movement of the market (and you are pretty good with numbers), then spread betting might be your golden opportunity.
How property spread betting works
Say the latest average Greater London house price is £269,000,” says Rob Thomas of the Council of Mortgage Lenders. “On the Cantor website, the figure for December 2007 is £298,000. If you bet a point (£1,000) that the market will go up, it will have to have risen above £298,000 by December for you to make money. If prices reach £300,000 by then, say, you will get a cheque for £2,000.”
How about betting down? “You might predict house prices will stay flat at £269,000. If they do, thus undercutting the predicted estimate of £298,000 by 29 points, you would make £29,000 profit (on a stake of £1,000). But if the market rises to, say, £310,000 you stand to lose £12,000.”
Spreadbettor Mohammed Miah
Chris Kobewka
He claims in his first month trading he turned a starting stake of £200 pounds into over £11,000. Beginners luck perhaps?
Chris Kobewka says ‘it’s very easy to make money in the markets – all you have to do is buy when it’s going up and sell when it’s going down’. This may sound too simple, but it’s the simplicity and crystal clarity of his vision that marks Kobewka out as a ‘natural’ trader, although he is the first to admit that ‘you’ve got to work for it’.
Born on a farm in Lincoln in 1960, Kobewka describes himself as a ‘yella-belly’. From the age of 13 he wanted to become a stockbroker. ‘I had no idea what they did but I knew they had big houses and made lots of money’, he says. He became the ‘man’ of the family at ten when his father died, and at 16 left school to be a mechanical engineer.
Kobewka was ‘apprentice of the year’, honing his skills at sheet metal, welding, fitting, milling, turning and electrical work. After moving up in the company and participating in a management buyout, he helped the new business to become profitable. So how did he make the move from engineering management to spread betting?.
Initially, he set up an account with a spreadbetting firm to punt on Grand Prix races and other sports events. Then he took a fancy to a new online financial dealing platform. He claims in his first month trading he turned a starting stake of £200 pounds into over £11,000. Beginners luck perhaps? Since then his performance has been less stellar: while most months have been profitable he admits to losing months as well.
‘Making money isn’t clever,’ he says. ‘It’s just the leverage making your money work harder for you. I’m sure the big institutions don’t want people to make money.’ Kobewka is frugal and says he ‘just hates to lose money’. He lives modestly in his Manchester flat and drives a low-powered Rover 214 to get into the lower car tax bracket. He has never flown in an aeroplane nor left the UK. Cooking is his hobby and he loves to create his own curries and stews. Divorced, he looks after his three boys twice a week.
One technique used by Kobewka is called ‘the fade’. It involves trading in the opposite direction to the short-term trend using either spread bets or futures. He has identified a set of parameters that he says win a high percentage of the time and allow him to trade just once a day, using momentum and trend indicators on short-term charts. Being a bit of a night owl, he sometimes stays up to trade the Nikkei index but he is happiest trading the Dow Jones online.
Whereas many people concentrate on trying to make a big win, Kobewka is satisfied with any kind of profit at all, even if it’s just four or five points at £1 a point. Compounding or pyramiding and a high win ratio appear to be the keys to his trading style. He also turns traditional risk management theory on its head. Most traders will tell you to operate a 3:1 or 2:1 risk-reward ratio. For example, if your target profit is 18 points, then you risk say, six or nine points to achieve this. Kobewka will often let a trade go 40 points against him, to make say, 10 or 20 points of profit.
How can this work? Since traditional systems are perhaps only right just over 50% of the time, they need to cut losses and let profits run to be successful. Kobewka, however, tends to favour systems that are often right 80% or more of the time, by allowing more latitude for the market to go wrong before it reverts to his benefit. He appears to be happy to make a living trading, rather than looking to be the big trader who makes millions. Patience, a quick intellect and a competitive nature have allowed him to pursue a trading career.
Chris Kobewka was asked by one spread betting company to stop trading on account of the extent of his incredible profit performance.
Originally published on Shares Magazine
Martin Grant – most spread betters lose because people do not do enough research before placing a bet
Former property developer Martin Grant, 44, from Melksham, Wiltshire, gave up renovating houses about seven years ago. He still has a portfolio of rental properties but now makes most of his money from spread-betting. Last year he boasted impressive returns of 1,400%, against 2% for the FTSE All-Share index, and earned well in excess of £100,000. He said that was exceptional and down to some bets he had placed on mining stocks. However, even in a “normal” year, Grant’s record is impressive. He said he tends to make between 300% and 400%. Spread-betting allows you to speculate on the future direction of all sorts of assets such as shares, stock-market indexes, currencies, house prices or commodities. You can bet on price falls as well as rises, which means you can make money even if markets are falling.
Grant was encouraged to give spread-betting a go by friends in the late 1990s, but he lost £100,000 in his first year. He said it took a couple of years before he felt he had “learnt” how to do it. He said: “It was only when I started shorting [betting on price falls] that things started to improve. I began shorting about 18 months before 9/11, and after that I just cleaned up as we went into a three-year bear market.”
He changed tack and began betting on price rises in 2003 after the markets bottomed out, but recently he has started going short again. For example, he recently shorted Tanfield Group, an electric bus company that has had a good run on the back of the clean-energy boom.
Grant added: “It’s a really difficult time at the moment. I still have some long bets on stocks where I think the share price will go up, but I am focusing on trying to spot companies whose share price is likely to fall. I am slowly being convinced that the bull market is over because I just can’t see where the good news is going to come from.”
Making money from spread-betting is not easy – research from the Cass Business School found 80% of those who spread-bet lose. Grant said this is because people do not do enough research before placing a bet.
Grant doesn’t bet on indexes or commodities, only on individual share prices through Cantor Index. When identifying stocks, he does not look at company balances sheets – he said he doesn’t understand them – but focuses entirely on share-price charts and trading volumes.
“Say you’ve got a share price at 95p and it can’t break through the 100p barrier – that to me is a stock to watch. I’d buy if it broke through 100p, because it could well rally further.”
As well as identifying a strategy, Grant said the key to successful spread-betting is good risk management. “If the price starts moving in the wrong direction then get out. Too many people sit there like rabbits in the headlights. Making a profit comes down to cutting the losers and running with the winners.”
When you place a spread-bet you can set up a stop-loss facility so your holding is automatically sold when the value hits a certain level – this enables you to mini-mise losses but saves you the has-sle of continuously having to monitor the price.
Most major spread-betting firms, such as City Index and IG Index, offer facilities to simulate a spread-bet without actually having to risk any money.
Originally published on the Sunday Times
Brian Jenkins Less – less of a gamble if you know what you’re doing
Losing £10,000 in two weeks on spread betting trades when you are not super rich would usually be a wake-up call for most people that their behaviour had got to a worrying point. But for one punter it was a signal not to cut his losses, but to log back onto the internet and have another go, albeit with a money management strategy in place.
“The thing with spread betting is that it is 80 to 90 percent psychological,” says Brian Jenkins, 35, a former soldier who has done tours of duty in the Gulf and Bosnia.
“I had a get-rich-quick mindset and there is no such thing. There is a get-poor- quick mindset, if you don’t get all the facts.”
Jenkins, who launched his own business promoting healthy living, doesn’t like to follow the herd when it comes to lifestyle or reaching his objectives.
With the Royal Engineers he worked on mine clearance trials in Bosnia and was a radio operator in tanks during the Gulf War. In his spare time he does things like sky diving.
“I am a hands on, get in there, and get dirty kind of guy,” he says.
It is perhaps not surprising then, that the father of two has stuck with spread betting – a high-risk pursuit traditionally favoured by city traders – to finance the future of Unique Lifestyles, the business he runs with his wife.
With the business still growing, Jenkins says he gets some income from neuro linguistic programming, which he is trained to offer to those wanting to lose weight or stop smoking.
But he is relying largely on the gains from spread betting to finance the expansion of the business and to achieve his long-term goal to introduce neuro linguistic programming into schools throughout the country.
“There are some simple, cool techniques that are in NLP which children can use,” he says. “But we have a whole package to do with food, exercise and mind techniques.”
Jenkins says he first tried spread betting several years ago, but realised it could be a way for him to make money, ironically, after he’d made his huge losses.
“Why did I go back into spread betting? Well I went back because I had a vision and I knew there was a method for me to get financially free,” he says.
He admits that the tax-free gains from winnings were also “a big attraction”.
What steadied his nerves was going on a financial spread betting course where he says he learnt a fundamental formula for winning.
From his Wiltshire home he applies the methods taught on the course. This involves a hefty amount of research, first narrowing down a sector, whether it be banks or pharmaceuticals, which has potential for a spread bet. He then conducts a valuation of a company within that sector, checking fundamentals such as its price-to-earnings (P/E) ratio and operating margin.
He follows this by working out the company’s earnings and revenue growth over the past two years. Next would be an assessment of the company’s viability including gearing ratio and net current assets. Then he would consider the firm’s outlook.
Market sentiment, gathered from analyst boards and discussion groups, is also taken into account. Finally he would look at the company’s ‘technicals’, including the 50/200 moving day average and its share price history before placing a bet.
After all of this, key figures must be met to enable successful trading.
“What is fundamental is that all the green lights are on,” he says of his strategy.
Discipline is also very important.
“The golden rule is that at no time would I ever place a trade where I could potentially lose more than 5 percent,” he says.
So far he says the strategy is paying off, with all his losses recouped. He is also beating his monthly target of 15 percent returns on his outlays.
His goal is to make £30,000 through spread betting this year. He recently did well by going short in March on the S&P 500 and Dow and is currently eyeing high commodity prices, energy stocks and the US retail sector.
Whether his strategy continues to bear fruit over the long term remains to be seen. But in the meantime he shrugs off suggestions that his reliance on spread betting to finance his future is needlessly risky.
“At the end of the day I am not a gambler,” he says. “I don’t go to the bookies. The reason this is different is that is that I have a strict methodology and there is an element of discipline.
“However, I wouldn’t want people to read this article and get all hyper and go and trade and lose their money,” he adds. “If people find a formula and follow the rules, then it is an opportunity to make reasonably safe money.”
Financial spread betting is not for novices. The reason is that – unlike fixed odds betting – you could lose significantly more than your initial outlay.
Financial spread betters offer a quote, also known as the spread, for the price of a market or share on a specified date in the future. For example, a quote may be given on GlaxoSmithKline shares of 1220p-1240p.
So if you think GSK’s shares will rise, you place an up bet or ‘buy’ at the top of the spread which is 1240p. If you think they will fall, you place a down bet, also known as a ‘sell’, at the low end, of the spread, which is 1220p. If the market moves in the direction you predicted, you win.
However, if the shares move against your bet, you stand to lose for each point fall or rise. If you have risked £10 per point, your losses or winnings will multiply per point movement.
Punters do not have to wait for their bet to expire and can take their profit or cut their losses at any time.
Originally published on Shares Magazine
Geraldine Davis – fan of shorting
Geraldine Davis has been a trader for the past 10 years after giving up being a vet because it was ‘too stressful’.
She works from her home in south west Devon using online trading brokers to trade. A fan of shorting, Ms Davis believes that far from causing market volatility, shorting actually is positive for the financial sector and a good way of making a quick profit, if you know what you are doing. ‘There are profits to be made!” Ms Davis insists.’
‘Shorting stocks can stop share prices from falling dramatically, and actually provide market stability. As long as you are aware of the dangers, shorting is a much quicker way to make a profit than traditional trading.’
‘People sometimes feel guilty about shorting, but you shouldn’t. You are not going to affect the market – it’s far bigger than you.’
Simon Cawkwell – aka Evil Knievel
Simon Cawkwell has become such a legend in spread betting circles that he is known more popularly by his alias, Evil Knievel. His reputation as a shrewd trader was cemented in the early nineties when he was one of the first to uncover the accounting irregularities of the media group run by Robert Maxwell. The former accountant favours holding shares for long periods before he shorts them.
‘I tend to take a long-term view,’ he says. His tastes are catholic. Does he prefer one sector to another? No. He simply looks to short weak stocks in areas that are overvalued. How does he determine his picks? By studying companies’ balance sheets.
At the moment, he is bearish on faddish companies which market individual voluntary arrangements. “I’ve taken the view that sooner or later the market will
Teresa Brown: Brains over brawn
Teresa Mostyn may have poured over books by Freud and Kant at university but today, she is more likely to be seen glued to Bloomberg TV and pouring over financial websites.
A 40-year old home owner with a teenage daughter, Teresa discovered spread betting a year ago. She says: I’ve been trading shares on the internet before but I find that spread betting is more rewarding financially.’
Teresa uses here psychology degree to understand the market. She says: ‘The market is also about human behavior.’
She dipped her toe in spread betting, in March 2003 after coming across a spread betting ad on the web. ‘I compared the different spread betting sites and chose ETX at the time because their website was so simply presented and so easy to grasp.’
The main draw was ETX Capital’s virtual trading platform, ‘I did dummy trading for a month and started trading real money when I became relatively confident.’
The breakfast room in her Victorian house serves as her dealing room. While the smell of bacon and eggs in the air makes her trading headquarters a far cry from those in the City, her daily routing is not dissimilar.
She gets up at 7.30am and, still in her dressing gown, ‘drinks in’ the daily papers while sipping a cup of tea.
She says: ‘I’ve got a Sky Digibox so Bloomberg TV would be on all day. The only time it’s not on would be when my daughter’s in and she switches it to MTV Base.’
Even then, Teresa would ask her to switch it back on to Bloomberg to check the price during the ads.
Her trading schedule can be pretty sporadic. ‘I would trader between 9.30 to 10.30am, the busiest times of the market. The I’d go again at 1pm to 3pm because that’s when the market gets going. Then I’m busy again between 6pm to 8pm.’
Life wasn’t rosy at the start. ‘I made mistakes earlier on.’ For example, one of her first punts was on the German stock market index DAX. While the DAX is ideal for short term traders because of its volatility, it is not one that experts would recommend for novices. Teresa knows better now and mainly trades on the S&P: ‘The DAX doesn’t seem to follow a pattern whereas the S&P index, the FTSE index, The Dow Jones, they all follow a trend.
In her first few weeks of online trading, Teresa learns the ropes the traditional way: “I would ring the spread betting company at least once a day for a couple of weeks. They were very good.’
One of her winning tactics was to open a buy position on a index, then when it drops down, she would actually add onto this losing position. ‘The price rebounds back and when I see the profit, I’ll take it.’
The method worked. ‘By around the end of July to August, I was getting GBP700 a week. For two months, I did not have one losing trade.’
Teresa started to believe that her trading manoeuvres were fool proof. ‘In August, I was really spending my wins, just going bananas. I couldn’t see anything going wrong except the chance that someone takes my computer away.’
But her winning streak took a nasty turn at the start of September. “When the dollar crashed, I panicked. I closed most of my positions and lost a lot of money when in hindsight, I didn’t really have to lose that much.’
She says: ‘I completely lost my confidence, and from then on every trade went wrong.’
Teresa considered backing out of the game altogether but her daughter persuaded her to change her mind. ‘She said that I should keep going because it’s something I love doing.’
After the bad run, Teresa clipped back here trading to twice a week. She adds: ‘I’m not looking at trading shares right now but when I do, I’d probably buy into AstraZeneca and one of the banks.’
Her advise to would be spread betters? ‘You have to believe in yourself. I started failing when I lost my confidence.’
‘Stop-losses can also work against you at time’, she warns. ‘It’s trial and error. But I tend to choose the widest stop-loss level so that I don’t’ get stopped out unnecessarily when the market’s volatile.
To keep abreast with news, Teresa reads investment magazines, the newspapers and subscribes to several financial websites.
‘But my Bloomberg TV’s always on, that’s my main source of news. I also spend much of the day looking at the charts, especially the S&P index’ she says.
Teresa believes there is the temptation to make trading unnecessarily complex. ‘I think you can make it so much harder for yourself. I have a friend in
Brighton who watches seven different screens. He ends up with information overload. The trick is to keep it simple.
Daniel Pitts: Shaken but not stirred
Daniel Pitts’s love affair with the stock market started in 1975. But the word ‘love’ is not one he’d choose. He made GBP60, 000 in 12 months through spread betting by following one golden rule: You need to divorce your emotions from a trade.
Keeping a safe distance between his heart and his pocket is just one of Daniel’s trading tactics. Another maxim is that a trader must always have a game plan.
‘The reality is that if you stand there without a game plan, you might as well write your bookmaker a cheque.’
With nearly three decades of trading experience under his belt – a passion that outlasted two (ex) wives and a combined payout of $1.2 million – Daniel has collected a wealth of knowledge about the machinations of the City.
And so, as he speeds along the motorway en route to a black tie dinner in the Cotswolds, Daniel switches his mobile phone to hands-free and parlays lessons learnt, pitfalls to avoid and the tracks of the trade.
For a start, learning how to trade is like trying to get a university degree. ‘Trading successfully is not something you can achieve overnight or after three months’, he says.
‘It takes a lawyer or a doctor sever year to get to where they are at. It’s the same with being a trader’. In his case, he says, ‘It could even take 15 years.’
Daniel’s worst trading lesson happened 10 years ago now, but the memory crashes back like it was yesterday. When the stock market suffered multiple heart seizures one day in October 1987, famously referred to as Black Monday, he sold all his shares in the ensuing months.
‘I didn’t realize that the October crash was a one-day phenomena. I spend the next six months selling all my shares and lost tens and tens of thousands.’ In hindsight, he could have taken a deeper breath and bided his time.
For a man who is in the thick of the action on the bond, commodity and equity trading desks- specializing in arbitrage trading – it is curious to see him spread betting. Why is he interested in what is considered a more entry-level form of derivative trading?
‘Very simply, you can trade in much smaller sizes and still get a massive exposure to the market.’
‘You know, it’s about always trying to search for higher yield investments and spread betting is a form of that.’
With GBP1, 000 initial capital and GBP1, 000 credit from his chosen spread betting company, Daniel started spread betting in the mid 1980s. However, a busy working life and day-to-day tasks got in the way and he stopped doing it for a while. He then picked it up when several spread betting companies joined the fray, giving prospective spread betters more choices and better spreads.
‘Companies like Deal4free and ETX Capital have also benefited from being online.’
So how does he make money?
Daniel’s mantra is ‘liquidity, liquidity, liquidity’. His trade of choice is the German Bund (Eurex) for this reason.
‘You can go in and out very quickly,’ he says. ‘The spreads are very tight so it’s often called ‘win or scratch’ [win or cover your costs]’.
Similarly, he also trades the S&P index. ‘There is a tremendous amount of liquidity there too.’
One of his best trades in 2003 was on the S&P index. ‘I shorted the S&P at 1030 and closed at 989.’ Daniel couldn’t have timed his exit point better. The lowest point that the index reached on that day was 988.
‘I try not to chase the market, which is very much based on technical analysis. I’m an economist by background so I prefer looking at the fundamentals.’
That said, Daniel uses charts as an aid to determine his entry and exit points.
His key tactic can be best described in one phrase: Stop or fruition.
‘It’s either you get the bet wrong and you close it at the stop-loss level or you take profits.’
According to ETX Capital, the average time a spread better holds onto a spread bet is five days. But to Daniel, the length of time shouldn’t be the main consideration.
‘Before I do any trades, I want lost of my indicators going one way. The longest I’ve held onto a position is two years and I got it right in the end.’
Trades do go wrong and traders should take that as part and parcel of trading.
‘Look at how venture capitalists do it. They invest in ten businesses knowing that nine will go bust and that they will make money out of the one successful business.’
Engrossed in conversation, Daniel misses his turn off the highway and finally calls the dinner host to ask for directions. It’s a bit of a metaphor for spread betting. After the call, he says: ‘It’s dark, I can’t see the road signs. That’s alright because I’ve got the map and the directions. I’ll get there eventually.’
Patrick Gray: The man with a plan
It was 7.30pm on a cold Thursday night. While most people would have called it a day and were perhaps relaxing in front of the TV, a different scenario was unfolding in a lower ground seminar room at Bloomberg’s headquarters in London.
In the middle of a room, jam-packed with short term trading neophytes sat Patrick Gray, 42, a money broker at one of the largest derivatives and foreign exchanges in the country. He was there to learn more about buy and sell charting signals.
Like most of the audience, Patrick was a bit perplexed about how to interpret charts using 50% and 61.8% retracements or the overbalancing rule.
‘It looks complicated’ he says. But he was determined to grasp the concepts. ‘Statistics show that only one in ten traders actually make money. I want to be one of the 10% who do.’
Patrick started spread betting four years ago. His first punt was on Vodafone, a spread bet made after he spoke to a client who said there’s money to be made on buying options in the stock. By coincidence, Patrick saw an advert from one of the spread betting companies and decided to open an account. ‘I went long (buy) on Vodafone. I made a profit but I remember being very nervous. I think it was just a GBP5 a point but it was quite nerve racking because I hadn’t done it before’.
He was also nervous because, while he was aware of the risk, he had no idea how to control it at the time. ‘I could see the potential of it going wrong. But I didn’t know about stop-losses then.’
Patrick describes his foray into spread betting as a lunge into the unknown as he did not know anyone who did it. Part of the beauty of spread betting is being able to exit the bet whenever you want, a fact he felt uncomfortable with at the start. He says: ‘I didn’t realize that I could go in and out of a trade without hurting anyone.’
‘If I was to open a trade and close it the next day, I felt like I was mucking them (the spread betting company) around a bit. I thought it wasn’t good to take up their time because if you book something for a three-month outlook and you take it out before that, I feel like I’m giving them extra work. I was completely naive.’
Another misconception he has then was that he was betting against the spread betting company. ‘I didn’t know they were laying off their positions in other ways.’
That was four years ago. Patrick says today he is much wiser and much better at his trades. In the first six months of 2003, he accumulated winnings or around GBP20,000.
What are his tactics?
Patrick’s normal trading day starts at 5:30am when he switches on Bloomberg TV to see how the markets in Far East fared and the state of play of the major currencies. ‘I look at the dollar against the yen and the euro against the pound.’
On the train ride to the city, he reads the Financial Times. ‘Sometimes, there are interesting articles but most of the major news I already knew from the day before, as they were happening.’
As soon as he arrives in the dealing room, he turns on his computer and out flickers live prices of currencies, indices, the price of the shares on his watch list and Reuters news.
Patrick often bets on the German index DAX because the German market is open from 8am to 7pm. He reasons: ‘Time is my biggest enemy. I would rather spend time with my family after work. They don’t want me stuck in the study room at night.’
To get to the punt right, he thinks working in the money market is an advantage. ‘It’s part of my job to look at the trading screens anyway.’ He argues that the market are interlinked and this means he can use his insight on the currency market to play the stock market.
His success at the beginning of the year did go awry after he trumpeted his wins to some of his workmates who then gave him money to bet on whatever he was betting on.
The boast backfired.
‘When I bet their money alongside mine. I started breaking my own rules. I wouldn’t follow my stop-losses and sometimes, I would let my bets run longer than I normally would.’
What were the lessons learning from that experience? ‘Well, first, I’ll always stick to my stop-losses and second. I won’t get myself into the same position again.’
Ultimately, Patrick wants to spread bet full-time. ‘I am trying to educate myself so I can do this a sole source of income….I aim to make GBP1 million pounds a year, that would be my goal.’
Is he being too ambitious? Perhaps not. Patrick is pinning his future fortunes on a well-planned strategy rather than just luck. ‘I don’t do the lottery. I cannot see the point. I bought a property five years ago that has now doubled in price. I’ve got a pension and if I ever have time, I would manage it.’
While most think that spread betting is no more than glorified gambling, Patrick believes that unlike a punt on a horse, spread betting gives you more control of your losses and wins. If something goes against you, you can’t just let it run hoping that it will turn around.
“You can’t afford to have hope in this business, it just wouldn’t work. If you hang on to the hope factor, you will get carted out.”
Four-hour days and a tax-free income – Tom Farrington
No-one would call the life of a spread better hard. “I reckon I work about four hours a day, four days a week,” says Tom Farrington, who last year made £60,000 as a day trader using spread betting.
Farrington, 47, gave up his job in human resources four years ago to concentrate on his trading, and in his first year managed to make a net loss of £5,000. It was a scary start to his new career, but taught him useful lessons about the need for self-discipline.
Farrington was able to finance his first-year loss from a portfolio of equities worth £250,000 which he already managed himself. The portfolio which he regards as his long-term savings is now worth £450,000, but it is day trading that provides him with an annual income.
Spread betting was less familiar in 2000, and Farrington began by trading futures options on the German Dax stock market index, using the broker Man Financial. The choice of index may seem surprising, but Farrington says there were good reasons for it.
“I chose the Dax because of its high volatility and ease of accessibility,” he says. “The FTSE was boring, and I knew too much about it; as a futures trader, it is better not to know too much about the market.”.
The observation seems counter-intuitive, but reflects the trading philosophy that Farrington has developed after studying the psychology of day-trading. His investment choices are basedon technical analysis, which identifies trading opportunities according to patterns of market performance, and mainly ignores “fundamentals” such as political or economic developments.
He finds spread betting an ideal way to trade using this technique, and more sophisticated than options trading. This forced him to trade a fixed amount £17 at the time for each point the index moved, whereas spread betting allows him more leeway.
Spread betting allows the punter to guess whether a number will be above or below a given range (the spread), andthe potential gain or loss depends on how many points above or below that range the number will be.
“With futures trading, whether my confidence was high or low, it made no difference as I had to bet a fixed amount,” Farrington says. “With a spread bet, I could bet as little as 1p a point and there was no limit to the maximum.”
The amount Farrington bets on each point depends on his confidence level. “This means that the better trades where my confidence is justified are more lucrative.”
No financial cushion is needed before starting to spread bet. But, because trading is on margin, potential losses are much higher than the initial outlay. Another downside is that the spread charged by the provider is always lost.
Farrington says spread betting is not suitable for day traders called “scalpers”, who make money by betting on one or two point movements, because the spread is always wider than this.
Farrington is not a scalper, and treats his day trading very much as a business. It is a business whose profits come free of tax because the Inland Revenue treats spread betting as gambling rather than investing.
Farrington has strong views on this point. “For some people, spread betting is gambling, and so they always lose because you can’t beat the house. For me, spread betting is investing; it’s the way I make my living.”
In 2002, Farrington’s second year of day trading, he made £25,000 by remaining focused on the Dax while improving and refining his technical analysis tools. He now uses just four main technical indicators Fibonacci, volume, price spreads and moving averages.
A technical analyst plots the distance between highs or lows in market or stock performance and fits them into a coherent pattern based either on regular numerical intervals or on patterns such as the Fibonacci series.
“At the beginning I used more indicators, but these are the ones I’m comfortable with and which work for me,” Farrington says. He uses software with a real-time data feed as well as a charting package, which costs him £80 a month.
But he emphasises that the charts and the software are merely ingredients in the overall mix. “You have to use proprietary tools as a starter,” he says. “Over time you start seeing things for yourself.
“Successful trading means developing a trading personality. Most people make it hopelessly complicated, but by far the most critical thing is getting your head right.”
The most important ingredient is self-discipline, which forces him to stick to basic rules such as setting stop losses.
“In my first year, I lost money by not behaving according to the rules,” he says, emphasising the need to write a business plan. Farrington’s monthly “sales plan” sets out how many pointshe must trade each day.”Once I meet my daily target I stop.”
He also advises would-be day traders to keep a journal. “I wrote down what I did and thought each day. You start to see firstly you’re making the same mistakes again and again, but also you notice patterns that aren’t in any textbook.”
As well as targets, Farrington also identifies in his business plan which days he is going to work. A typical working day involves getting up at 6am to prepare for the FTSE to open. He uses City Index, the spread betting service, to bet on FTSE stocks and trades only in the first 1 1/2 hours after the market has opened.
By 10am he has switched off the computer, and starts trading again only in the first or last 1 1/2 hours of US trading.
Farrington estimates that, on seven out of 10 bets, he either makes nothing or loses money. But he is happy with the income generated from the other three bets and has no plans to work any harder at it.
“I wanted to get to whereI could earn a good salary from day trading,” he says. “I have no visions of red Ferraris.”
He supplements his trading income by giving day-long training sessions to would-be spread betters, and says the only thing he misses about his old job is the day-to-day contact with other people.
He does not envisage another career change. “I never get bored because markets are so unpredictable,” he says. “I will go on doing this forever.”
Nicola Poskitt – the face behind the trade
As a financial trader at spread betting firm City Index, Nicola Poskitt is the person responsible for handling orders. We caught up with her to find out more about what goes on behind the scenes.
Have you ever wondered who answers the phone and processes your order at a spread betting company?
One such person is Nicola Poskitt of City Index. Nicola, 26, grew up in Gidea Park, near Romford in Essex, and left school at 16 to work for Watches of Switzerland, a retail jewellery group based in London’s West End.
After a while, she became increasingly attracted to the well-paid, fast-paced possibilities of a job in the City of London. A career in London’s financial district is not at all unusual for school-leavers from Essex: it’s just a short tube ride away in most cases. Nicola estimates that around 25% of her class in Romford went on to work in the City.
But at 21, she realised her job prospects would be much improved by having a university degree, so she enrolled at Goldsmiths College, part of the University of London, and went on to graduate with a BSc in Computing and Information Systems. Soon afterwards, she landed a position at City Index in Moorgate.
On call
Nicola works the phones, taking calls at the financials desk along with other traders and calling out new positions to the colleague responsible for keeping a tally of the firm’s net positions in key markets. She provided us with some insights into the mechanics of dealing at a spreadbetting firm.
‘Orders are constantly popping up on our computers, and when they do we check that the levels are all correct and process them using drop-down menus. Most orders are accepted in less than ten seconds. The majority of customers will place stop-loss or limit orders.
‘There are about 100 people on the floor, though not all people are dealers. I am known as a financial trader, as are the people who keep the positions book.
They will not normally answer the phone unless it gets really busy. There are about five people just keeping the book on different markets in the area I work.
‘On the financials (currencies and commodities) desk, there are around 11 dealers on duty at any one time and around 13 on equities. The binary betting desk is also picking up considerable steam.’
Daily (intraday) FTSE and DOW are the most popular instruments traded, says Nicola. Currencies are also in vogue, especially euro versus the dollar and more recently Cable (sterling/dollar).
Other markets, such as NYMEX and BRENT Crude (oil), have enjoyed a recent rush. ‘We have always had a lot of clients dealing in gold and some of the smaller things such as soybeans and soybean meal also get some trade. Clients who trade commodities often opt to trade a range of markets.’
These days, Nicola is frequently up at 5.30 am in time to be at her desk for the first shift. On Saturday nights, though, she often meets old friends for a girls’ night out
Market moves
What happens if the market is moving really quickly, for example when some new figures come out? If the underlying market moves in the few seconds that the customer has to submit a bid on the price offered, is this order accepted or rejected?
‘That’s at the discretion of the person who’s got the book,’ explains Nicola. ‘But the majority of the time, we give people the price that they’ve been quoted because that’s the price the client wants to deal at.
‘A lot of the time, when figures do come out, we get very, very busy. But even on stop loss orders and things like that people will usually get filled at their level – even if there has been a jump in the market.’
If it’s a very large number of pounds per point, is that more likely to be subject to a requite than a smaller deal? ‘In theory yes, that is correct, but it does happen very rarely. Perhaps twice a month in a rapidly changing market at my station.’
Early doors
These days, Nicola is frequently up at 5.30 am in time to be at her desk for the first shift. On Saturday nights, though, she often meets old friends for a girls’ night out, going for a curry or an Italian.
Her mother, until recently a teacher and school head, and her father have combined together to run a beauty salon in Romford called ‘Lesprit Delle’, and she sometimes helps out.
Nicola left home a year ago and has bought a house in Stratford, where she lives with her partner Jason.
Valery Ann Moore: Dax the way to do it
Valery Ann Moore bounced back from a car accident to trade the German market. Larry Levy speaks to her about highs, lows and coming out on top
Private futures trader & Spreadbetter – Method of Trading: Technical, System & Discretionary
It’s strange what brings people to trading. For Val Moore it was a car accident that left her recuperating in London’s Royal Masonic Hospital and wondering what to do next.
She happened across an article in a Sunday newspaper in early 1998 about a trader who was apparently training people successfully to become traders themselves. Later, having spent several thousand pounds on a course and software, she realised that what she had been taught was little more than theory. ‘It was like having a history of a motor car but nobody teaching you how to drive it,’ recalls Val. After that she developed her own individual, practical style.
The trend is your friend
Nowadays, Val trades only one market – the German DAX index – either through an online futures account with GNI, which provides her with one-click access into the exchange computer, or through a spread betting account.
Using for example, a 23-minute chart with a 13 and 7 exponential moving average crossover to obtain her entry points, Val stresses that she will only trade in the direction of the mediumterm trend. To determine trend direction on the DAX, she will use a longer moving average (like an 80 period) and not trade against the direction of that average.
As the DAX is often influenced by the direction of the American S&P 500 index – the ‘big daddy of indices’ – trades will also only be taken in the direction of this US index. Generally, she will look for at least 20 points in a trade, seeking or searching for palpable, previous support and resistance points in order to set her target. ‘You’ll never buy at the bottom or sell at the top,’ says Val, adding, ‘It’s the chunky bit in the middle that I like.’
‘Trading is all about consistency,’ she says. ‘Mentally you need to feel you come out of 80% of trades in a win situation. Consistency is far more important than going for big wins, especially since markets like the DAX now trade at lower levels and are less volatile today compared with a few years ago.’
She likens the process of trading to that of a sausage machine. In other words a rather monotonous process in which signals and trades go in consistently and results come out.
Using multiple lots, Val employs a simple technique to lock in profit. For example, she may go long four DAX futures at 3811. She might then close one lot at say 3821 and two at 3823, locking in her profit on three of the four lots and leaving the final contract to run in the event of a big move up. Should she perceive a trade is going against her she will close all contracts immediately, maintaining a strict 20-point stop loss.
Spread-betting – way to go
Val has less than fond memories of brokers: ‘You could tell from their attitude. They were sort of thinking: “Hah, for goodness sake – go back to your knitting.”‘
On the other hand, she adds, ‘I definitely think spread-betting is the way to go. They (the spread-betting firms) can be very good and supportive and they do have these little training things, especially at the beginning where you can trade for £1 a point.’
She makes no bones about women’s potential as traders, where she thinks they have a winning edge. Men too often try to over-complicate things, frequently shrouding their trading in mystery – ‘You’ve got to take trading down to its most elemental and simplistic form.’
Persistence and pain
Val was born in Wimbledon in 1952. Her parents became publicans, and she grew up in and around The Queen’s Arms in the Caledonian Road. She was married in 1971 and has worked for various insurance brokers and a printing company. At 36, she was in a car accident and became partially disabled until corrective surgery.
With her gusty good looks, bushy blonde hair and bright emerald-blue eyes, it’s hard to believe Val, who was recently widowed, has enjoyed anything but the good life. But this lifestyle has been won at the altar of hard work, persistence and pain.
These days, she enjoys frequent holidays in Mallorca and occasionally runs a tennis camp there for children from the UK. Until recently, she could be spotted around Guildford in her sporty red Mercedes SLK Convertible but now has her eye on a racinggreen Aston Vantage.
Originally published on Shares Magazine
Adrian Brink – Silver and Commodities
Adrian Brink is also in his early 50s. Mr Brink currently has a full time job, as a partner of a publishing firm so doesn’t do trading on a full time basis.
But this isn’t to say that trading is a hobby for him. He says he has turned his pension of £125,000 in 2004 into almost £800,000. He has done this from a combination of buying and selling shares in the mining sector as well as more recently trading a fund, now worth about £40,000, by spread betting in the silver market.
Mr Brink is the first to admit that he has been lucky with his initial investments, having picked the mining boom driven by the rapid urbanisation of the economic giants China and India.
He points out that the main risk he took was investing in one sector – commodities, but he has diversified widely within this sector.
“I’ve had two real disasters, both in the former Soviet Union, but overall, my investments have been well spread and my timing was good.”
Mr Brink says that he is very conscious of sovereign risk. He also says that because the heat has come out of the commodities boom, he is now conscious of exploration risk and now looks solely to invest in mining companies that are actually producing, as well as exploring. Previously when the sector was hot, he invested in companies whose potential was all blue sky, or exploration based.
In his trading account he has reduced the risk he is taking as well. His strategy, a common one, is to buy and sell based on the relative strength indicator for the silver price, which indicates whether the commodity is over bought or over sold, according to Mr Brink.
“Previously when I traded, most of the money (in the fund) was at risk, but now I tend to trade a smaller percentage of cash and I haven’t had margin calls.
I tend to set stop losses that are narrow. I find it irritating being taken out when I can see it will go the right way, but that is the nature of things.”
Mr Brink says he spends about an hour a day trading, which seems to be the goal of most traders we spoke to.
“I like working in publishing. I wouldn’t want to trade full time, because I would get bored. I quite like it when it’s not a demanding activity.”
Originally published on Investors Chronicle
Andy Adow – Sticking to Fixed-odds Financial Betting
After betting on the financial markets for more than a year, Andy Adow has been raking in more than £500 a fortnight, and the savvy trader has high hopes for 2008.
The 43 year-old surveyor, has followed the financial markets for more than 10 years now. He began with spread betting – but now sticks with fixed-odds financial betting, focusing mainly on forex trading.
Andy, from Newham, said: ‘I have made a lot of money from fixed-odds financial betting, on Betonmarkets (now called Deriv). It seems to work well for me, so I will definitely continue with it. I don’t see it as betting, but financial trading, as I think it is possible to tell what is going to happen. For example, the pound shot up the other day so I put up a trade to be above that level.’
But Andy admits he sometimes gets it wrong. He said: ‘Obviously you don’t always get it right, but I seem to more often than not. I have won £1200 in just a couple of weeks and I went through a phase of winning a few £250 bets in a row, when I bet on the GBP/JPY with a one touch trade. I am definitely up on my money, but I have also lost some as well. When I first started I did really well and then I went through a bit of a lull, but I’m doing well again now. The forex markets are all about timing so the key is to make sure you get that right.’
Whilst Betonmarkets offers some of the widest range of bets in the online marketplace with 10 different types of fixed-risk bets on single stocks, stock indices and the forex; Andy particularly favours the forex markets which allow 24 hours a day trading activity, and also frequently bets on stocks. He prefers the One Touch range bets as these pay out if the market goes up or down, he usually aims to earn a 300 per cent plus return on his money.
Andy views financial betting as a second income. ‘It is extremely lucrative’, he added. He has spent his winnings so far on repairs to his house and a flat screen TV for his mum. Andy said: ‘It’s a great way of funding those extra expenditures.’
Andy has set himself a target for next year, aiming to generate £500 a week pocket money from BetsForTraders.com.
Apart from big events like the Grand National or the FA Cup, Andy does not bet on sports. And he believes financial betting is for everyone. He added: ‘Although I have followed the markets for several years, I don’t think you have to be a market whiz to be successful at financial betting. It is all about spotting a trend, following it and getting the timing right.’
Day trading: ‘I lost £200,000 in a day’
Martin Hickman, who became hooked on spread betting after retiring, has had some spectacular gains – and losses.
Spread betting was meant to be just a hobby to keep Martin Hickman busy while his wife was out at work, but now it dominates his life.
‘I was going to be a house husband, I was going to look after the dog and do a little trading on the side,’ he said. ‘But then things escalated. I am hooked – it has taken over my life.’
Martin Hickman: “I’ve always been a bear market trader. I only sell the FTSE’
Mr Hickman’s alarm goes off every day at 6.30am. ‘I switch the computer on straight away – before turning on the kettle – and it stays on until well after midnight. I will sit there all day watching and waiting,’ he said. ‘I bore my wife silly about it, but she understands.’
Mr Hickman has made some serious money spread betting. He claims to have made about £300,000 last year alone. The cash has allowed him to build up a substantial property portfolio and take his family on luxury cruises and high-class breaks at the Waldorf hotel in London.
‘I have been a trader nearly all my life,’ he said. ‘I was a futures trader trading sugar for 17 years before it became computerised, then I traded oil.’ In retirement he decided to give spread betting a whirl.
‘I’ve always been a bear market trader. I only sell the FTSE,’ he said. It meant he made almost straight losses for the first three years in the early Noughties as the FTSE 100 index soared. He was still shorting the FTSE in 2007 when it neared 7,000 points. But then came the crashes of 2008.
‘In January 2008 I made £70,000 in one month. All in all, 2008 was a fantastic year for me. I made about £300,000,’ he said. Despite the FTSE’s gains at the end of last year Mr Hickman, continued to short the FTSE.
He claimed to have made a further £173,000 in the first three months of 2009 when the FTSE slid to just above 3,500. Since then things have not been so rosy, as the FTSE has come back. He said daily profits and losses could easily swing from £40,000 down to £40,000 up.
‘On the worst day this year I lost about £200,000,’ he conceded.
But the 54-year-old won’t even consider giving up. “What else can you do that is this much fun and you can make so much money from?” he asked. ‘The real beauty is you can do it when you want, from wherever you want – I often place trades while on the deck of cruise ships with a drink in my hand.’
