| What really shifted opinion was the introduction of more transparent pricing. Spread betting companies recognised that spread betting was a cheap, flexible way to play the financial markets, but the instruments remained bound by pricing associated with betting. The true evolution of spread betting occurred with the introduction of more transparent pricing, allowing retail investors to make judgments based on the cash market price in common with the physical trading of shares or contracts for difference (CFDs). This coupled with more competitive dealing spreads, means betting on the financial markets has become a serious way to trade. Many people are using spread betting as their initiation to the financial markets. Many say spread betting offers much more for much less. Of course spread betting is best suited to short to medium- term trading strategies, but rolling cash and daily bets mean spread betting should be included as a weapon in the armoury of any investor, whether for speculation or risk management. |
There was a time when financial spread betting was just a way to "punt" on the financial markets, purely a gambling product with wide spreads and odds firmly in the bookmaker's favour.
But the last years have witnessed a revolution, spurring a big growth in the number of traders declaring themselves spread betters. Speak to a typical spread betting company and they'll tell you their clients are from every walk of life. No longer are they exclusively from the Square Mile, escaping the frenzy of the trading floor to punt their own money for fun.
It started when financial spreadbetting hit the internet. Quick execution on a vast array of global financial instruments fired the imagination of the more active private investors. Add to this the potential to make money in a falling equity market, and the fact that spread bets are exempt from capital gains tax, and you see a winning formula.
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But what really shifted opinion was the introduction of more transparent pricing. Spread betting companies recognised that spread betting was a cheap, flexible way to play the financial markets, but the instruments remained bound by pricing associated with betting. The true evolution of spread betting occurred with the introduction of more transparent pricing, allowing retail investors to make judgments based on the cash market price in common with the physical trading of shares or contracts for difference (CFDs). This coupled with more competitive dealing spreads, means betting on the financial markets has become a serious way to trade.
Daily spread bets and rolling cash bets have been introduced by a number of the spread betting companies including CMC Markets, IG Index and Financial Spreads. Bets of these types offer a product based upon the underlying cash price rather than the traditional futures price, allowing traders to relate prices to the tangible cash market.
There are two good reasons why you should consider technical analysis.
Brokers' buy notes and tips in the late 1990s were correct, not because of their analysis, but because of the up trend of the market. Now the trend has changed and the shortcomings of fundamental research is being revealed. Chartists are now credited with predicting the bear market - and how long it will last.
The problem that has been highlighted in a bear market is that much of the financial world is geared to markets going up and has a vested interest in them doing so. There are only two main groups that are not bothered whether this is happening or not: chartists and spread betters. Chartists are only really concerned with being seen to predict the markets correcting and spread betters are happy as long as it moves enough for them to trade quickly and successfully.
Traders no longer use spread betting simply for speculation. Its flexibility makes it ideal for hedging and particularly useful with sophisticated strategies such as pairs trading. Traders with a significant share portfolio are turning to spread betting when market prices are going down to lock in profit. Having pricing closer to the underlying cash price and competitive spreads is vital to ensure hedging is effective in achieving a market neutral position.
Trading strategies that have become increasingly popular are pairs trades on both individual shares and indices. A pairs trade usually compares the performance of one share against another linked share. For example they are in the same industry. Should an investor believe that Shell would outperform BP, he buys Shell and sells BP in equivalent amounts, looking to exploit a diverging correlation between the two stocks. This type of trade relies on specific company data and is popular when earnings results are expected. An example of pairs trading using Indices would be if a trader felt that Vodafone would outperform the blue chip market. In this instance the trader would buy Vodafone and simultaneously sell the equivalent value of the FTSE 100 Index.
Many people are using spreadbetting as their initiation to the financial markets. Many say spread betting offers much more for much less. Of course spread betting is best suited to short to medium- term trading strategies, but rolling cash and daily bets mean spread betting should be included as a weapon in the armoury of any investor, whether for speculation or risk management.
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