Spread
Trading history


A phenomenon
in recent years is the emergence of 'Spread Trading',
mainly in Europe and the UK, and you may have heard about
it in a day trading chat room or forum. Spread Trading is
similar to ordinary trading, in the sense that you have the
opportunity to go long or short on stocks, indices, or other
instruments, but there the similarity ends. It is generally
much more difficult to make money at Spread Trading because
of the spread itself. The spread trading company makes money by quoting you a 'spread' between the bid and
the ask. This spread can be immense  for example you will
be lucky to find a spread smaller than 5 points on the FTSE,
or half a point on the S&P. The spread trading company
explains that this is more than compensated for by the fact
that any profits you make are tax free (in some jurisdictions,
anyway), and that they don't charge any other fees.
What they
don't tell you is that the moment you enter a FTSE trade,
for example, you are immediately underwater to the tune of
the spread (eg 5 points) multiplied by the number of pounds
(or dollars) per point you are spread trading with. Win or
lose, they make that amount of money. You, on the other hand,
face an uphill struggle even to reach break even. Say you
go long the FTSE 100 at 3925 at £10 per point. If you
wanted to immediately close that position, you would need
to create a matching short, but the best price they will now
offer you is what you bought at minus the spread  i.e. 3920.
You just spent £50 (assuming the market didn't move).
That is actually kind of expensive commission rates.

Spread
Trading tips


What does
this mean for a spread trading investor like yourself? Simple.
If you pay the spread whether you win or lose, you need to
get your percentage of winning trades up. Normally, traders
balance the number of winning trades they are happy with against
the average profit (or loss) per trade. That way, even a 50%
average win ratio will make money, if the average winner is
bigger than the average loser. With spread trading, however,
this equation becomes skewed, and you need more winning trades,
even if the average win size goes down slightly. This is
why Camarilla is so perfect for spread trading  the percentage
of winning trades is high, historically, meaning that the
number of occassions when the spread trading company adds
insult to injury by adding their spread to your loss is actually
very small.Camarilla gives you a low risk entry point, and
sensible points to take profits, meaning that even a 5 point
move on the FTSE, for example, becomes a tradeable move for
a spread trader.
Perhaps
the single best piece of advice we can give you if you are
Spread Trading is this: compare the spread with the average
daily volatility in order to decide whether you should be
trading this instrument. In other words, if the spread offered
by your broker on (e.g.) the FTSE is 5 points, but the daily
range is only 20 points, you have to capture a LOT of the
daily range just to pay the spread  not worth trading! On
the other hand, if the spread on (for example) the S&P
500 is 0.5 points, and the average daily range is 15 points,
that equates to only about 3% of the range, so yes, it is
a good instrument to trade.

Spread
Trading example


Does Camarilla
work on the FTSE 100? Of course. Study this example from 21st
May 2003:
The 'SHORT'
level was available to you the day before thanks to the Camarilla
{b} Equation, as was the profit target. That is a 20 point
spread trading move. If you had that information the day before,
do you think you would have been up early on the day, ready
for a spread trading rip roaring profit taking day?
Yep. So
would we.

Read Trader
Jack's account of Spread
Betting the S&P on 14th November 2003





Whether you trade
100 shares or 1000 shares, Stock Day Trading has never been easier
than with the levels suggested by the SureFireThing Camarilla Equation.
