Spread Betting Techniques
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What Is Spread Betting?
Spread betting allows a trader to speculate whether an asset is going to rise or fall.
You can spread bet in any market, and your profit comes from correctly guessing the direction the market goes.
You do not need to bet on a specific price, just the direction.
This type of trading is accessible to everyone interested in trading. It is often recommended to beginners as it is easy to grasp.
As with all trading and investing, some techniques work, and some do not work.
Below are four spread betting techniques that actually work:
1. Reversal Spread Betting
This strategy is based on identifying areas where trends are going to change direction.
Here, you bet bullish or bearish, suggesting that the market will either increase or decrease.
When using this technique, traders open a spread bet in the opposite direction to the current trend.
For reversal spread betting to work, you need to take advantage of all tools and indicators. The most effective being the Fibonacci retracement tool, which helps determine if a market is reversing or if it is experiencing a retracement.
Prices going beyond the identified levels signify a reversal in the market.
The best confirmation tools for this technique are:
- Technical indicators – Moving averages, MACD
- Stochastic oscillator Volume – High volumes suggest a market is going to continue in the same direction
- Key reversal candlestick patterns – Head-and-shoulders, double top and bottom
Reversal Spread Betting Example
You want to create a NAS100 bet.
The NAS100 has been in an uptrend for the past week, and you believe it is about to experience a reversal.
You use the tools available to you and decide to place a bet if you see the double top candlestick pattern.
Should the market reverse, you will make a profit. However, if it continues on the same path, you will experience a significant loss.
The tools are merely indicators, and there is no guarantee to how the market will behave.
2. Trend Market Spread Betting
This technique uses technical analysis to find the trend. The trader then places a bet in line with this trend.
It is considered a medium-term strategy.
You use the tools available to you to find the start and finish of a market’s movement.
It includes indicators such as:
- Moving averages
- Moving average convergence/divergence (MACD)
which help find the best open and close positions.
Trend market spread betting is a popular strategy. It allows you to follow the market regardless of whether you are going long or short.
However, you need to remain alert as trends can change in an instant. This technique also falls victim to overnight risk.
When using this technique, decide on a timeframe to watch a market before placing your bet.
Trend Market Spread Betting Example
The price of an alternative vegan sausage is on an uptrend. You open a long spread betting position by buying the sausages.
When you reach your profit target or the data suggests the market is about to reverse, you close your bid by selling the sausages and collecting the profit.
Alternatively, suppose the vegan sausages were in a downtrend. In that case, you could open a short spread by opening a position to sell.
3. Breakout Spread Betting
This involves entering a trend as early as you can in anticipation of the price breaking out.
Breakout spread betting is based on the belief that key price points are an indicator of movement or an expansion of volatility.
Coming in at the right time allows you to take advantage of the trend from beginning to end.
For this technique, you will utilize:
- Volume trading indicators – consolidation and breakout patterns
- RSI indicators
- MACD indicators
These tools will help you identify resistance and support levels.
To facilitate this technique, use your limit-entry orders at identifying price points. If the market moves, the order is automatically placed.
Breakout Spread Betting Example
Gold is trading at $1,400.
It has been this way for over three weeks, but the data suggests it will soon break out into a downward trend.
Historic levels of support show that a key price point is $1,385.
You place an entry order to open a short spread if the price falls below $1,384.
If this happens, your order is automatically placed.
If not, then you haven’t lost or gained anything.
4. News-Based Spread Betting
News-based spread betting involves trading based on news and market expectations.
As news travels fast these days, you need to have the skills to assess the information quickly after its release to determine if it is credible and of any use.
- Does it match the market expectations?
- Has the news been fully integrated into the price yet?
To be successful with news-based spread betting, you need to:
- Treat each news update and markets as individuals
- Know and develop strategies for each type of news update
- Assess the market reaction to the news as that offers further information
News-based techniques are useful for volatile markets like commodities.
Almost every day, there is a news update that affects the price of coal or oil. There are also events guaranteed to happen, such as elections that will change the market.
Use an economic calendar and keep up with worldwide events to help with this technique.
News-based spread betting only works if you are familiar with global political, social and economic events.
News-Based Spread Betting Example
Votes for the presidential election are currently being counted, and two of the swing states voted differently than expected.
This news has speculated that the US dollar value will increase by 0.23 cents on the British pound.
From your knowledge of currencies during elections and the outcome from the last US election, you decide that the value will not change.
You decide not to take any drastic action. Instead, you place an order to open a short spread should the value increase by 0.20 cents.
How Do I Become Successful at Spread Betting?
- Stay informed. Keeping up with current global affairs is a great way to help you better understand the stock market. Note any trends or reactions that happen to a particular market when a news story breaks. This habit will help you make more informed decisions when similar stories break in the future.
- Develop your knowledge. If you are going to put your money into trading and investing, you may as well take the time to improve your understanding. Study spread betting and all the strategies associated with it. Use the demo accounts to try them.
- Get a second opinion. Use third-party tools to reassess or confirm your data. The tools your platform provides will more than likely be accurate, but there is no harm in getting a second option. If you are trading in markets outside of the US, use tools specific to that region to see if it offers something else.
- Make a trading plan. Before committing to any investment, determine your goals and make a plan to help you achieve them. Include other types of markets and techniques. The most successful traders are those with diverse portfolios.
- Choose and analyze your market. Not every market suits every type of trading. Not every market suits every trader. Decide where you want to put your money, then decide the how. For every market you trade in, learn everything you can; its history, top-players, reactions to news and events, and how it responds to recessions.
- Manage risk. Before deciding what risk management tools you should use, determine how you feel about risk. Are you going to play it safe, or are you ok with bigger elements of risk? How much can you afford to risk? Once you know these answers, choose your risk assessment tools.
Spread betting techniques and strategies exist because they are known to work. But not every technique is applicable.
To be successful in spread betting trading:
- Use the right techniques for the right markets at the right time
- Learn as much as you can about the whole trading industry
- Invest in a good trading platform
- Never invest more than you can afford to lose
- Remember your long and short-term financial goals when making any trade or investment
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal capital.