A lot of casino players find the world of financial trading mind-boggling and decide to overlook it, instead choosing their favourite card or table games.
Yet, those who are doing so are passing up on a way to make an absolute killing. Spread betting has created more than one overnight millionaire, and those who know what they’re doing can literally hit the jackpot on a regular basis.
Betting on the financial markets is far simpler than it first seems, and there are certain ‘trigger events’ which virtually guarantee the market will move in the direction you are betting.
Unlike sports bets where there are three possible outcomes: win, lose and draw, in the financial markets there are only two: up or down. It’s just like a coin toss. This means you have a greater chance of winning and if you place your bets at the right time, the odds are very heavily in your favour.
Don’t believe it? Read on and you might be surprised.
How Spread Betting Works
There are a number of ways to gain access to betting on the stock markets, but spread betting is, in my opinion, by far the best.
There are several things which make spread betting better than actually buying or selling stocks or betting with binary options. They are:
> Spread betting is simple and easy to understand.
>Spread betting is free from capital gains tax in the UK (where I live).
>Spread betting allows you to set a definite limit on your losses.
>Spread betting can be done quickly and easily from mobile apps on the go.
>Spread betting isn’t you vs the house, and the trading station you use to place bets has no leverage over you. They make a flat fee per trade whether you win or lose.
For all of these reasons and more, spread betting is many gambler’s preferred method of betting on financial markets.
So how does spread betting work? It’s really very simple. Stock markets and prices move in points, and you as the bettor nominate a value per point. For example, let’s say you bet £1 per point on the English stock market, the FTSE100, going down, because there have been several companies reporting less than impressive earnings all morning.
You open your trading account, nominate the value of £1, select the FTSE100, and click SELL. A SELL order is always betting on the market going down, whereas a BUY order is always betting the market is going to go up.
Now that you’ve placed your bet, for every point the FTSE100 falls, you gain £1. The flip side of this is that for every point the FTSE100 gains, you will lose £1. There’s a way to decide before you bet how much you’re willing to lose and automatically close the trade, but more on that in a moment.
Simple enough, isn’t it? There’s just one other thing to look out for, called the spread. This is the difference between the actual market price and the price your trading platform is willing to allow you to buy or sell at. Typically it is 1-5 points for major markets.
This means that in our example SELL trade the market will have to fall by 1-5 points before you break evens, and everything after that is profit. This is how the trading platforms make their money, and it’s nothing to worry about, since at the right times markets will fall by a lot more than that!
Limiting Your Losses In Case You Get it Wrong
One of the best things about spread betting is a tool called the STOP LOSS. This allows bettors to decide beforehand how much they’re willing to lose on a single bet. Let’s stick with out example of SELLING the FTSE100 at £1 per point to illustrate how a stop loss works.
Let’s say the FTSE100 index is trading at 7000 points. You believe it is going to fall, so you place a sell order. However, you place a STOP LOSS order at 7100, so in the case that you’re wrong and the FTSE100 rises, you can lose a maximum of £100. If it goes up by 100 points to 7100, the trade closes out automatically, even if you’re not at the computer or don’t have your mobile device handy.
If you’re right and the FTSE100 falls, however the stop loss makes no difference and doesn’t cost anything. You can then wait until I feel you’ve made as much money as possible, and close the bet.
It can’t be emphasized strongly enough how important it is to use the STOP LOSS feature on every trade. If you don’t, even if you run out of funds in your trading account, the trade may still stay open and you’ll be expected to foot the bill as long as the losses keep running. Use the STOP LOSS, and that can be avoided.
When to Place Spread Bets – 4 Great Trading Ideas
It is much easier to predict when a stock or market price is going to fall than go up, based on a simple principle of human psychology: fear.
Knowing this, there are some key events to look out for which lead people to feel fear and uncertainty, which will almost always lead to a fall in company stock prices or overall stock index values.
1) Missed Earnings Expectations – Companies release their earnings every financial quarter, and in the weeks before they do, analysts estimate how much profit they will have made and buy or sell stock accordingly. When companies miss these expectations, which they do regularly, the stock price tends to fall. How much it falls by depends on how badly they missed market expectations by. You’ll want to get a spread betting account with an economic calendar which tells you when the earnings are going to be released, so you can tune in and spread bet as and when it happens.
2) US Jobless Claims & Unemployment Rates – Every country releases economic data on a monthly basis, and one of the biggest market movers is called US jobless claims. This will have an immediate impact on the DJIA (Dow Jones Industrial Average) and the S&P (Standard and Poors) indexes. If the jobless claims and unemployment rates are higher than expected, you can pretty much expect the market to go into a nosedive, meaning you have a great chance to bank juicy profits on SELL orders.
3) Political Events – Another great time to place sell orders is during any political turmoil or significant event causing uncertainty. Investors hate uncertainty and those with billions invested in stock markets will usually play it on the safe side and pull out their money until everything settles down and they can get a clear picture of what might happen in the future. Look for political coups, scandals, unexpected resignations, and escalations in tensions between powerful countries. All of these can provide excellent opportunities for placing SELL orders on that country’s stock exchange.
4) GDP Data – As part of their monthly data releases, each country tells the world how much its economy grew or contracted by monthly. The overall output of the economy is called GDP, and as you might have guessed, when it fails to meet expectations, the stock market in that country tends to fall. Again, it will fall by a lot if the economy has contracted by a lot, and a little if it has only contracted a little. GDP data missing expectations can really move markets violently as it indicates that something is wrong in the underlying economy.
So that is spread betting in a nutshell. It’s very simple to understand and make money from, but always, always be sure to use the STOP LOSS feature on every trade, since markets can often move rapidly in one direction or the other.
As long as you manage risk by using the STOP LOSS and only bet when you have a good reason to believe a market is going to move up or down, you will make regular profits from spread betting.
We hope this report has been useful and informative. Good luck!