What is Spread Betting?

Spread Betting appeared in the UK over 25 years ago, although only recently has it reached the public consciousness in a big way. As an alternative to 'traditional' trading, it has advantages and disadvantages. It is possible to use spread betting on sporting events as well as financial instruments, though as outright gambling, this won't be of much interest to you. In terms of financial instruments, you can find pretty much the same selection as you are used to with your broker, including so called 'cash bets' on indices which are the equivalent of futures contracts, and which generate a day trading signal in a similar way to real instruments. The basic principle is that the bookmaker (the equivalent of your broker, such as Tradindex, who also provide a day trading simulator in real time) does not charge direct commissions when you trade, instead he makes his money by offering you a 'spread', i.e. there is a gap between the price at which you can buy and the price at which you can sell.

How does Spread Betting work?

Imagine you think that the Dow Jones Index will fall. You contact your Spread Betting company, and go SHORT of the index. The price the Spread Betting company will give you will be closely (but not TOO closely!) related to the underlying instrument (usually the nearest futures contract price) less a few 'extra' points. Your position, of course, is immediately underwater, and will remain so unless you are correct, and the market falls far enough to absorb the spread. If you get it right, at some point you will want to close the position, and this you do by creating an exactly opposite trade, in this case a LONG for the same amount. The price you get will be the current cash price, plus a few extra points. As you can see, to make any money at all, your trade has to be at least equal to the spread.

So how much money did I make?

This is one of the advantages of Spread Betting - instead of buying or selling fixed size contracts, or multiples of shares, you 'bet' a number of 'pounds' (the UK currency) per point. The different spread betting companies have different requirements in this area - some allow you to bet a few cents a point (or '5p' as they say over there), some require at least one pound (about a buck sixty). So in the above example, if you had gone short at two pounds a point, and the Dow fell 150 points, you would make 150 points x 2 pounds = 300 pounds, less the spread (let's say the spread is ten points, so the trade has actually cost you 10 points x 2 pounds = 20 pounds, meaning you only actually made 280 pounds).

This means that those of you who are 'financially challenged' can still try trading, because you may only need to stump up a few hundred bucks to get started, instead of the thousands in margin that would normally be required. The downside is that it sounds expensive, doesn't it, when a round trip on a futures contract might only be a few dollars, execution only. BUT... in the UK at least, gambling appears to be tax-emept, so any winnings you make spread betting are, in theory, tax free (tax laws, sadly, can, and do change for the worst, whenever they can).

Minimising risk

Most Spread Betting companies not only allow you to use a standard stop loss order, but also, for a bigger spread, a 'guaranteed' stop loss. This means that if your stop is 20 points away, and the Great Crash of 2003 halves the market's value overnight, your position will still be closed at 20 points loss, and no more. This is a kind of insurance, and can make a 50 - 50 strategy interesting around major news events, times when you would normally NOT want to be in the market. Basically, you guess which way the market will jump on the announcement, and set a guaranteed stop the other side. If you are right, bang! big profit. If you are wrong, your maximum loss is already set. Obviously not a strategy for a serious trader, but interesting none the less.

Is the Equation useful for Spread Betting?

Yes. As you can imagine, as every position you put on is immediately underwater, often to an alarming degree, you need solid trades that rapidly go the right way. The SureFireThing Camarilla Equation breakouts are levels where you SHOULD have the weight of the entire market behind you, and therefore should become profitable very quickly.

So where can I Spread Bet?

There are a number of established spread betting companies in the UK and Europe, backed by fairly reputable and large bookmakers. You may need a local mailing address in order to open an account with them. Search Google for the current best offers.

Note that we do not recommend any of the above companies; we offer you links to them for purely informational purposes.