Popular Spread Betting Strategies To Profit From
There are several ways to trade in rising or falling markets. This includes spread betting which is a simple and tax free way to trade. In this type of trading you do not own the underlying instrument which could be shares or futures contract but bet per point movement of shares, currencies, indexes, commodities and other financial instruments. There are several spread betting strategies you can use to profit even from falling markets.
What is spread betting
In spread bets you are given a ‘buy’ and sell’ price of an underlying instrument. The difference between the two prices is known as the ‘spread’. If the market is likely to rise you can open a spread bet at the buy price. In investment terms, this is known as going ‘long’ or taking a long position. If the price of the underlying instrument is likely to fall you can open a spread bet at the sell price, also known as going ‘short’. Spread betting brokers such as TradeRush and AnyOption offer a variety of assets to traders. The broker will quote a ‘sell’ price and a ‘buy’ price based on the current or estimated future price of the underlying asset. You bet on a per cent or point movement with as little as $1 per point and predict whether the market will rise or fall. If your prediction is right the profit is your stake multiplied by each point the market has moved in your favor. On the other hand, if wrong prediction will result in a loss of your stake multiplied by every point the market has moved against your trade. Since losses can increase just as dramatically as an profit, it is important to understand the different types of spread betting strategies and use them wisely. If you are new to spread betting it would be prudent to open a demo account with a broker.
For example, if the FTSE 100 Index stands at 5300.6, your broker may quote 5300.1 as the ‘Sell’ price and 5301.1 as the ‘buy’ price. This is a 1-point spread on which you can bet that the value of the FTSE will rise or fall. If you predict that the value of the FTSE will rise you ought to buy or make a Up Bet at 5301.1. Alternatively, if you predict a fall in the FTSE, you should sell or make a Down Bet at 5300.1. Based on this example let’s assume you decide to ‘Sell’ on a bet of $2 per point movement and the market falls with the FTSE 100 at 5290.8. Your broker quote is 5290.1 – 5291.1. In this case you will need to buy at 5291.1 and close your ‘Sell’ bet. If you opened with a buy bet, you will need to sell to close. If you close by purchasing at 5291.1 your profits will be calculated as 5300.1 – 5291.1 = 9 x $5 = $45. Losses are calculated the same way if the market begins to rise above the level you sold.
Trading with the trend
Trend following or trading with the trend, reversals and breakouts are among the popular strategies in spread betting. Trend following is one of the common strategies used by novice traders. This involves considering the underlying momentum in market prices prior to determining their trading pattern. After you identify a trend there are several methods to enter a spread bet. Enter when the market is bullish and makes a new high or a new low when the market is bearish. Accordingly you can place a buy-stop or a sell-stop beforehand. If the market does not reach that high and begins to turn around your spread bet is safe since your buy-stop is not filled. One the other hand you can wait for the market to make a new high or low and wait for a dip or pull-back to enter. The key is to jump aboard a good trend early on and keep adjusting stops so you can profit from any movement.
Reversal trading strategy
Contrarian trading or reversal trading is another common strategy that requires a lot more skill. It takes time to master although it can be very rewarding. The key is to look for uptrends or downtrends are over-extended and likely to reverse. The objective is to look for ‘buy’ entries when a downtrend begins to move higher and ‘sell’ entries when an uptrend is almost complete and is likely at a point where it will turn lower. One of the advantages is that it allows for favorable entry points to buy low and sell high. It takes practice and the use of indicator tools to master these spread betting strategies before you can gain the potential to earn larger profits when successful.