Simon Smith takes risky but informed punts on how much house average prices, supplied by the HBOS or the Land Registry, will rise or fall in three, six or 12 months' time. He is not alone, either. A growing number of young people are turning to spread betting on property prices, either because of disillusionment with a turbulent stock market or with the real world of bricks-and-mortar investment.
So, is it possible to make money out of property without the boring necessity of actually buying a house, paying stamp duty or dealing with oleaginous estate agents? The answer is yes: by betting on the movements of the British housing market.
Spread betting, as it is known, has proved fabulously lucrative for players such as Simon Smith, 33, who makes rather a good living by sitting in his office in Leeds working out what is going to happen to house prices - and placing his money accordingly.
Smith began for a bit of fun four years ago when property spread betting was in its infancy, and proved so adept at predicting the swings in the market that he packed in the day job as an IT systems analyst at Leeds Metropolitan University. Remember the property crash that never happened (or, at least, has not happened yet)? Smith bet against the likelihood of a nose dive and cleaned up.
"I'm surprised more people don't do it, given how much spread betting takes place in this country and our national obsession with house prices," he says. "But maybe most people have already taken a huge gamble on the market, with their own house."
So how does Smith do it? Three or four times a week, he logs on and makes trades on the basis of where he thinks house prices, in a variety of markets, will be at a given quarterly date in the future. He sets both an upper and lower price, thus providing the "spread" for others to bet against. Cantor Spreadfair, (editor comment: Spreadfair is now defunct but try Befair), the company Smith uses, takes bets on the average London house price and the average UK house price.
When the given date comes around, the Halifax quarterly house price survey is used as the official indication of where the market is. Smith gives an example of how it works. "The current spread that I have posted for the average London house in September 2007 is £297,500-£300,000," he says. "Now if the Halifax index comes out in September and reveals that house prices have gone up above the £300,000 mark, and if you were betting up, you will have made money. But if you had been betting up, and the market is still somewhere below £297,500, then you would have lost."
His best month? "December 2003. It was a point at which many people were expecting a crash. However, I thought that the market wouldn't go down very much. And bet on it."
There was indeed no crash. "It's about understanding the perceptions on the housing market, against what is likely to happen," Smith adds. "I have got it wrong sometimes and lost money."
Not very often, however. Smith is coy about how much he has made, but it has been enough to pay off his mortgage. In fact, he has sold off most of his buy-to-let portfolio, keeping just two properties that he rents out. Is he a gambling man at heart? Not really. "I've always been good at maths. And I enjoy taking calculated risks."
Are there many other Simon Smiths out there? Not that many. Andrew Garrood, co-managing director of Cantor Index, which runs Cantor Spreadfair, says property spread betting is still a "nascent" industry.
Part of the problem with gambling on house prices like this is that the time span involved is short; money is made or lost much more rapidly than by investing in actual bricks and mortar. It is also not for the faint-hearted: if things go wrong, they can go very wrong indeed, and, unlike with other more conventional forms of gambling, you can end up losing more than your initial stake - making the whole thing somewhat akin to financial Russian roulette.
"Spread betting appeals to people wishing to carry out short-term trading, and who want to make a quick win from the property market - without the need to put up capital," says Justin Urquhart Stewart who runs Seven Investment Management, a company that provides financial advice to high net-worth individuals.
"However, because your loss is calculated by the difference between your estimate and the reality of the prices, you can end up losing a lot more than your stake if prices move against you. I think spread betting on property is for professional speculators only."
But if the market were to take off, could you enter a remarkable world where abstract betting on house prices was bigger than, and even potentially affected, the housing market itself? "Yes," says Rob Thomas, senior policy advisor at the Council of Mortgage Lenders. "But we are nowhere near that now."
There are other ways, of course, to make money in property without forking out for a building. You can buy shares or invest in real-estate investment trusts. But if you consider yourself a true property anorak with a healthy obsession with the movement of the market (and you are pretty good with numbers), then spread betting might be your golden opportunity.
Say the latest average Greater London house price is £269,000," says Rob Thomas of the Council of Mortgage Lenders. "On the Cantor website, the figure for December 2007 is £298,000. If you bet a point (£1,000) that the market will go up, it will have to have risen above £298,000 by December for you to make money. If prices reach £300,000 by then, say, you will get a cheque for £2,000."
How about betting down? "You might predict house prices will stay flat at £269,000. If they do, thus undercutting the predicted estimate of £298,000 by 29 points, you would make £29,000 profit (on a stake of £1,000). But if the market rises to, say, £310,000 you stand to lose £12,000."
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Spreadbettor Mohammed Miah
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He claims in his first month trading he turned a starting stake of £200 pounds into over £11,000. Beginners luck perhaps?
Chris Kobewka says 'it's very easy to make money in the markets - all you have to do is buy when it's going up and sell when it's going down'. This may sound too simple, but it's the simplicity and crystal clarity of his vision that marks Kobewka out as a 'natural' trader, although he is the first to admit that 'you've got to work for it'.
Born on a farm in Lincoln in 1960, Kobewka describes himself as a 'yella-belly'. From the age of 13 he wanted to become a stockbroker. 'I had no idea what they did but I knew they had big houses and made lots of money', he says. He became the 'man' of the family at ten when his father died, and at 16 left school to be a mechanical engineer.
Kobewka was 'apprentice of the year', honing his skills at sheet metal, welding, fitting, milling, turning and electrical work. After moving up in the company and participating in a management buyout, he helped the new business to become profitable. So how did he make the move from engineering management to spread betting?.
Initially, he set up an account with a spreadbetting firm to punt on Grand Prix races and other sports events. Then he took a fancy to a new online financial dealing platform. He claims in his first month trading he turned a starting stake of £200 pounds into over £11,000. Beginners luck perhaps? Since then his performance has been less stellar: while most months have been profitable he admits to losing months as well.
'Making money isn't clever,' he says. 'It's just the leverage making your money work harder for you. I'm sure the big institutions don't want people to make money.' Kobewka is frugal and says he 'just hates to lose money'. He lives modestly in his Manchester flat and drives a low-powered Rover 214 to get into the lower car tax bracket. He has never flown in an aeroplane nor left the UK. Cooking is his hobby and he loves to create his own curries and stews. Divorced, he looks after his three boys twice a week.
One technique used by Kobewka is called 'the fade'. It involves trading in the opposite direction to the short-term trend using either spread bets or futures. He has identified a set of parameters that he says win a high percentage of the time and allow him to trade just once a day, using momentum and trend indicators on short-term charts. Being a bit of a night owl, he sometimes stays up to trade the Nikkei index but he is happiest trading the Dow Jones online.
Whereas many people concentrate on trying to make a big win, Kobewka is satisfied with any kind of profit at all, even if it's just four or five points at £1 a point. Compounding or pyramiding and a high win ratio appear to be the keys to his trading style. He also turns traditional risk management theory on its head. Most traders will tell you to operate a 3:1 or 2:1 risk-reward ratio. For example, if your target profit is 18 points, then you risk say, six or nine points to achieve this. Kobewka will often let a trade go 40 points against him, to make say, 10 or 20 points of profit.
How can this work? Since traditional systems are perhaps only right just over 50% of the time, they need to cut losses and let profits run to be successful. Kobewka, however, tends to favour systems that are often right 80% or more of the time, by allowing more latitude for the market to go wrong before it reverts to his benefit. He appears to be happy to make a living trading, rather than looking to be the big trader who makes millions. Patience, a quick intellect and a competitive nature have allowed him to pursue a trading career.
Chris Kobewka was asked by one spread betting company to stop trading on account of the extent of his incredible profit performance. He later went on to develop the 60 Minute Trader System. which he's still trading day in, day out.
Originally published on Shares Magazine
Former property developer Martin Grant, 44, from Melksham, Wiltshire, gave up renovating houses about seven years ago. He still has a portfolio of rental properties but now makes most of his money from spread-betting. Last year he boasted impressive returns of 1,400%, against 2% for the FTSE All-Share index, and earned well in excess of £100,000. He said that was exceptional and down to some bets he had placed on mining stocks. However, even in a "normal" year, Grant's record is impressive. He said he tends to make between 300% and 400%. Spread-betting allows you to speculate on the future direction of all sorts of assets such as shares, stock-market indexes, currencies, house prices or commodities. You can bet on price falls as well as rises, which means you can make money even if markets are falling.
Grant was encouraged to give spread-betting a go by friends in the late 1990s, but he lost £100,000 in his first year. He said it took a couple of years before he felt he had "learnt" how to do it. He said: "It was only when I started shorting [betting on price falls] that things started to improve. I began shorting about 18 months before 9/11, and after that I just cleaned up as we went into a three-year bear market."
He changed tack and began betting on price rises in 2003 after the markets bottomed out, but recently he has started going short again. For example, he recently shorted Tanfield Group, an electric bus company that has had a good run on the back of the clean-energy boom.
Grant added: "It's a really difficult time at the moment. I still have some long bets on stocks where I think the share price will go up, but I am focusing on trying to spot companies whose share price is likely to fall. I am slowly being convinced that the bull market is over because I just can't see where the good news is going to come from."
Making money from spread-betting is not easy - research from the Cass Business School found 80% of those who spread-bet lose. Grant said this is because people do not do enough research before placing a bet.
Grant doesn't bet on indexes or commodities, only on individual share prices through Cantor Index. When identifying stocks, he does not look at company balances sheets - he said he doesn't understand them - but focuses entirely on share-price charts and trading volumes.
"Say you've got a share price at 95p and it can't break through the 100p barrier - that to me is a stock to watch. I'd buy if it broke through 100p, because it could well rally further."
As well as identifying a strategy, Grant said the key to successful spread-betting is good risk management. "If the price starts moving in the wrong direction then get out. Too many people sit there like rabbits in the headlights. Making a profit comes down to cutting the losers and running with the winners."
When you place a spread-bet you can set up a stop-loss facility so your holding is automatically sold when the value hits a certain level - this enables you to mini-mise losses but saves you the has-sle of continuously having to monitor the price.
Most major spread-betting firms, such as City Index and IG Index, offer facilities to simulate a spread-bet without actually having to risk any money.
Originally published on the Sunday Times
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Losing £10,000 in two weeks on spread betting trades when you are not super rich would usually be a wake-up call for most people that their behaviour had got to a worrying point. But for one punter it was a signal not to cut his losses, but to log back onto the internet and have another go, albeit with a money management strategy in place.
"The thing with spread betting is that it is 80 to 90 percent psychological," says Brian Jenkins, 35, a former soldier who has done tours of duty in the Gulf and Bosnia.
"I had a get-rich-quick mindset and there is no such thing. There is a get-poor- quick mindset, if you don't get all the facts."
Jenkins, who launched his own business promoting healthy living, doesn't like to follow the herd when it comes to lifestyle or reaching his objectives.
With the Royal Engineers he worked on mine clearance trials in Bosnia and was a radio operator in tanks during the Gulf War. In his spare time he does things like sky diving.
"I am a hands on, get in there, and get dirty kind of guy," he says.
It is perhaps not surprising then, that the father of two has stuck with spread betting - a high-risk pursuit traditionally favoured by city traders - to finance the future of Unique Lifestyles, the business he runs with his wife.
With the business still growing, Jenkins says he gets some income from neuro linguistic programming, which he is trained to offer to those wanting to lose weight or stop smoking.
But he is relying largely on the gains from spread betting to finance the expansion of the business and to achieve his long-term goal to introduce neuro linguistic programming into schools throughout the country.
"There are some simple, cool techniques that are in NLP which children can use," he says. "But we have a whole package to do with food, exercise and mind techniques."
Jenkins says he first tried spread betting several years ago, but realised it could be a way for him to make money, ironically, after he'd made his huge losses.
"Why did I go back into spread betting? Well I went back because I had a vision and I knew there was a method for me to get financially free," he says.
He admits that the tax-free gains from winnings were also "a big attraction".
What steadied his nerves was going on a financial spread betting course where he says he learnt a fundamental formula for winning.
From his Wiltshire home he applies the methods taught on the course. This involves a hefty amount of research, first narrowing down a sector, whether it be banks or pharmaceuticals, which has potential for a spread bet. He then conducts a valuation of a company within that sector, checking fundamentals such as its price-to-earnings (P/E) ratio and operating margin.
He follows this by working out the company's earnings and revenue growth over the past two years. Next would be an assessment of the company's viability including gearing ratio and net current assets. Then he would consider the firm's outlook.
Market sentiment, gathered from analyst boards and discussion groups, is also taken into account. Finally he would look at the company's 'technicals', including the 50/200 moving day average and its share price history before placing a bet.
After all of this, key figures must be met to enable successful trading.
"What is fundamental is that all the green lights are on," he says of his strategy.
Discipline is also very important.
"The golden rule is that at no time would I ever place a trade where I could potentially lose more than 5 percent," he says.
So far he says the strategy is paying off, with all his losses recouped. He is also beating his monthly target of 15 percent returns on his outlays.
His goal is to make £30,000 through spread betting this year. He recently did well by going short in March on the S&P 500 and Dow and is currently eyeing high commodity prices, energy stocks and the US retail sector.
Whether his strategy continues to bear fruit over the long term remains to be seen. But in the meantime he shrugs off suggestions that his reliance on spread betting to finance his future is needlessly risky.
"At the end of the day I am not a gambler," he says. "I don't go to the bookies. The reason this is different is that is that I have a strict methodology and there is an element of discipline.
"However, I wouldn't want people to read this article and get all hyper and go and trade and lose their money," he adds. "If people find a formula and follow the rules, then it is an opportunity to make reasonably safe money."
Financial spread betting is not for novices. The reason is that - unlike fixed odds betting - you could lose significantly more than your initial outlay.
Financial spread betters offer a quote, also known as the spread, for the price of a market or share on a specified date in the future. For example, a quote may be given on GlaxoSmithKline shares of 1220p-1240p.
So if you think GSK's shares will rise, you place an up bet or 'buy' at the top of the spread which is 1240p. If you think they will fall, you place a down bet, also known as a 'sell', at the low end, of the spread, which is 1220p. If the market moves in the direction you predicted, you win.
However, if the shares move against your bet, you stand to lose for each point fall or rise. If you have risked £10 per point, your losses or winnings will multiply per point movement.
Punters do not have to wait for their bet to expire and can take their profit or cut their losses at any time.
Originally published on Shares Magazine
Robbie Burns has a few tips for amateur spread betters. The former finance editor for Sky TV, Mr Burns left journalism in 2001 during the tech bubble to trade for a living. He continues to write and has written a book called Naked Trading, which is full of tips for novice spread betters.
Here are a few: The way to make money is to take your losses quickly. Don't open a lot of positions at one time. The more positions you have open, the more time it takes to check them.
His own personal strategy tends to be to hang on to his holdings for three to six months as this gives them 'time to grow'.
In addition, he likes to use spread betting to complement his share trading.
'I might buy a share in the market and have a spread bet as well,' he says. 'I spread bet sometimes to top up my personal holdings.'
The benefit of spread betting is that it offers you the ability to make money by shorting. "If the market is looking toppy, you can make money on the downside," Mr Burns says.
The downside to spread betting is that if you're not good at it or you make mistakes, you can lose money quickly. "Ninety per cent of spread betters lose," Mr Burns says.
Comment: Robbie Burns strategy is relatively simple to grasp - it basically suggests that the trader should hold onto winning stocks and let go of losing stocks. Burns suggests that often, a trader's emotional side can cause them to do the exact opposite, i.e. sell stocks that are in profit to realise that profit (along with its associated feel-good factor), and hang onto stocks that are losing so as to defer the feeling bad about actually taking a loss -besides which, a losing share might pick up and then you won't have to bear making a loss on one of your stocks after all! When I read about the approach, it immediately struck me as making sense because it sounded so Darwinian...
Geraldine Davis has been a trader for the past 10 years after giving up being a vet because it was 'too stressful'.
She works from her home in south west Devon using websites such as Capital Spreads to trade, but is currently out of the market due to difficulties with her internet connection. A fan of shorting, Ms Davis believes that far from causing market volatility, shorting actually is positive for the financial sector and a good way of making a quick profit, if you know what you are doing. 'There are profits to be made!" Ms Davis insists.'
'Shorting stocks can stop share prices from falling dramatically, and actually provide market stability. As long as you are aware of the dangers, shorting is a much quicker way to make a profit than traditional trading.'
'People sometimes feel guilty about shorting, but you shouldn't. You are not going to affect the market - it's far bigger than you.'
>> Page 2 - Spread Betting Success Stories from the Front-Line
