Learn Spread Betting and Spread Trading Strategies for Trading Success

By karlvcohen on January 22, 2011 In Currency Trading

A kind of leveraged tool which allows investors and traders to utilise advanced trading strategies and opportunities to trade the financial markets – that’s what spread betting stands for in the financial world. In this perspective, they are able to trade a security without ever taking physical ownership of the underlying instruments.

Using spread betting, traders or investors will be able to speculate on the direction of a financial instrument; be it up or down with the bet being settled as the difference between the original purchase and sell price. They can trade on different kinds of financial investments, including commodities, currencies, shares and even index contracts etc.

Spread betting in itself is much more accessible to private traders than futures trading is what is also true. With spread trading you can even go as low as GBP0.50 a point with some providers and you aren’t penalised by higher commissions for taking lower trade sizes or entering a position in tranches and the standard market size of a FTSE future would typically be ten pounds. Tax free and free from capital gains tax which is good since taxes only add to the costs of trading – that’s what spread trading additionally is.

Perhaps one of the simplest spread trading strategies that traders utilise is to use the leverage that spread betting provides to take on a bigger exposure than would be possible with their capital investment. Pairs trading to gain from the relative performance of one company or sector in relation to the other, an even more sophisticated strategy is used by others. During turbulent markets to protect their long term shareholdings from being negatively impacted by the subsequent general market decline, using this trading mechanism for hedging purposes, is what even others do.

Financial spread betting’s risky and leveraged nature, without doubt, may appear daunting to new investors. The risk of potentially losing more than your initial investment is something which some investors find hard to accept but here it is worth noting that spread betting brokers have devised several risk mechanisms to control the exposure. This would include the popular stops; including limit and stop orders, guaranteed stops and the trailing stops but also more advanced trading strategies like ‘if done’ and ‘contingent orders’ to make the entry and exit trade process of a trade completely automated.

A lot of spread trading strategies and trading systems on the internet some of which are free and others which cost thousands, can probably be found. That they have to try out all these systems, is what some traders think,but what matters is that you find one system that works for you. The more complicated the strategy, as per what others believe, the more likely it is to be effective is normally false and a simpler system simply means that there are less things that may end up going wrong. In addition some trading systems may not suit your personality; for instance if you are looking to swing trade the markets it would not work if you try to use an arbitrage system.

Author is an expert on spread trading and trading strategies.