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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.7% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Spread Betting Techniques

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.7% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

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.

Spread betting is similar to CFDs as you don’t own the actual stock. But brokers usually offer no commission on spread betting, while CFD fees are often high.

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.

Spread Betting Techniques
Spread Betting Techniques

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.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.7% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.8% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

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?

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

Frequently Asked Questions

Spread betting is a strategy where a trader does not own the asset they are putting a bet on.

On the stock market, their bet is based on the speculation as to whether the asset will either fall or rise in price. They do not have a personal stake in the asset and are only betting on the speculative data they have available.

In sport and commercial use, someone involved in spread betting will be rewarded for the accuracy of their bet rather than the fixed outcome.

For instance, you may bet on a sporting team to win by a margin of 10 points. If they win by this amount, the bet maker will receive a payout because of the predicted margin.

Spread betting is a high leverage form of trading. This means that instead of equity being used to trade, other funds are used in the form of debt or borrowed funds.

Because of this, stakes are often high, and debt can accrue quickly.

It is also considered a risk because of its speculative nature. Stock traders who spread bet are ultimately relying solely on the changes in market volatility. With stocks' higher volatility there are substantial gains and losses.

If you place your stock bets carefully, you can make a living from spread betting. Market volatility can lead to financial rewards.

However, without a plan or stock trading strategy, spread betting is highly risky.

If you do want to consider building your lifestyle around spread betting, you must seek trading experts and discuss their successful strategies.

Spread betting can lead to great financial rewards if done carefully. Despite these rewards, most spread betting traders choose to use the strategy in short-term stints.

It is not often the main investment strategy for trading experts, and they often lean upon other methods to derive long-term profit. Spread betting is used to capitalize upon uncharacteristic market volatility.

The speculation on either rise or fall of the price of an asset can result in quick financial gain.

Day traders and short-term traders can use spread betting to increase their assets and maximize profit.

In sport, spread betting gives better odds to those placing the bet. If someone making a bet feels confident a team can win, they can increase the number of their outcomes by using spread betting.

Although it is regulated by the FSA in the UK, it is still illegal to use this tactic in the USA.

It is considered a form of gambling because of the speculative nature of the tactic, and therefore it is forbidden to conduct.

The sport’s oddsmakers set a favorite to win the contest and an underdog. Each team will be given a spread margin. One team who are favorites may be expected to win by five or more points, whilst the underdog may be expected to lose by five or more points.

You can bet on the spread of points to increase your odds. In this case, someone who bets on the margin must either expect the favorites to win by five or more points.

If they bet on the underdog to win, they will be given greater leverage because of the decreased odds. They will get a return if the underdog team wins or loses less than five points.

When you buy shares, you take full ownership of the asset you have purchased. This means that if a company you have shares in capitalizes and becomes more profitable, you will receive dividends for this.

In comparison, you use borrowed debt to spread bet and do not have ownership of the shares you are betting upon. This means that there is less collateral if the price of a stock falls, but it also means you do not get dividends.

Shorter-term traders usually prefer to spread bet as a payout is quicker. However, long-term traders like to buy shares and invest in companies that will pay dividends later.

What you feel is better is dependent upon your trading strategies.

A contract for differences (CFD) is a financial agreement between the buyer and the seller of an asset.

The contract states that the buyer will pay the seller for the difference between the current value of a share and its value at the end of the time agreed upon in the contract.

This is a very quick form of trading and is also speculative like spread betting. The major difference between the two is that spread betting speculates on present changes in market volatility, whilst CFD trading speculates on the price of an asset in projected time.

Spread betting is speculative, and the main source of finance used for it is a highly leveraged form.

You are not betting with owned assets or finance. The outcome of your bets is based upon the predictions made on market behavior.

Although these behaviors and trends may be well researched, there is not the certainty like there is when you are trading with owned assets or income.

Spread betting companies allow traders to bet on shares that may have high market volatility. However, because it is illegal in the US and because it is considered a form of gambling in the UK, it is highly regulated.

Therefore, spread betting companies must follow strict protocols and laws. If they attempt to manipulate market volatility or drive the prices of shares either up or down, they will be subjected to a criminal investigation.

Spread betting companies can lock traders out of trading if they suspect them of any dubious betting behavior.

Most spread betting companies require a minimum of £100 to set up an account. However, opening an account does not necessarily mean you can start earning profit from your trade. You will likely need at least £300 to start making bets that you can derive profit from.

Forex spread betting is the speculation over the rates of different currencies.

The advantage of spread betting in forex is that it allows traders to utilize high leverages with different foreign currencies. They do not need to transact on a foreign exchange market and can use the leverage of different currencies to place a bet.

For instance, you may be placing a bet in US dollars with a company that operates in France and uses the Euro. You can bet on the changes in the exchange rate between the two currencies to dictate the outcome of the bet.

If there are any changes in the exchange rate between the currencies, you will receive a payment with the change being taken into consideration.

Spread betting is also considered gambling by the FSA in the UK. If you are a US citizen, you will need to obtain a license from the United Kingdom Gambling Commission.

If you are caught spread betting in UK markets whilst you are still a US citizen, you will be subjected to financial investigation.

Most of the spread betting is used for short-term gain and most people only partake in it to supplement their income.

According to data provided by the FCA, 82% of people who took part in spreading betting lost money, and 18% either broke even or made money.

It is a risky strategy to rely upon, but you can make a substantial amount of money if you do your research and prepare your bets well.

Financial spread betting is simply leverage trading, meaning you use borrowed debt to bet on market volatility. Traders do not need ownership in the trades they are upon. All they need is information on shares and forecasted market values. It is a short-term strategy that traders use to increase their income quickly.

Final Thoughts

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.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.7% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.


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