Simon Cawkwell has become such a legend in spread betting circles that he is known more popularly by his alias, Evil Knievel. His reputation as a shrewd trader was cemented in the early nineties when he was one of the first to uncover the accounting irregularities of the media group run by Robert Maxwell. The former accountant favours holding shares for long periods before he shorts them.
'I tend to take a long-term view,' he says. His tastes are catholic. Does he prefer one sector to another? No. He simply looks to short weak stocks in areas that are overvalued. How does he determine his picks? By studying companies' balance sheets.
At the moment, he is bearish on faddish companies which market individual voluntary arrangements. "I've taken the view that sooner or later the market will
Teresa Mostyn may have poured over books by Freud and Kant at university but today, she is more likely to be seen glued to Bloomberg TV and pouring over financial websites.
A 40-year old home owner with a teenage daughter, Teresa discovered spread betting a year ago. She says: I've been trading shares on the internet before but I find that spread betting is more rewarding financially.'
Teresa uses here psychology degree to understand the market. She says: 'The market is also about human behavior.'
She dipped her toe in spread betting, in March 2003 after coming across a spread betting ad on the web. 'I compared the different spread betting sites and chose ETX Capital (here you can check our interview) because their website was so simply presented and so easy to grasp.'
The main draw was ETX Capital virtual trading platform, 'I did dummy trading for a month and started trading real money when I became relatively confident.'
The breakfast room in her Victorian house serves as her dealing room. While the smell of bacon and eggs in the air makes her trading headquarters a far cry from those in the City, her daily routing is not dissimilar.
She gets up at 7.30am and, still in her dressing gown, 'drinks in' the daily papers while sipping a cup of tea.
She says: 'I've got a Sky Digibox so Bloomberg TV would be on all day. The only time it's not on would be when my daughter's in and she switches it to MTV Base.'
Even then, Teresa would ask her to switch it back on to Bloomberg to check the price during the ads.
Her trading schedule can be pretty sporadic. 'I would trader between 9.30 to 10.30am, the busiest times of the market. The I'd go again at 1pm to 3pm because that's when the market gets going. Then I'm busy again between 6pm to 8pm.'
Life wasn't rosy at the start. 'I made mistakes earlier on.' For example, one of her first punts was on the German stock market index DAX. While the DAX is ideal for short term traders because of its volatility, it is not one that experts would recommend for novices. Teresa knows better now and mainly trades on the S&P: 'The DAX doesn't seem to follow a pattern whereas the S&P index, the FTSE index, The Dow Jones, they all follow a trend.
In her first few weeks of online trading, Teresa learns the ropes the traditional way: "I would ring the spread betting company at least once a day for a couple of weeks. They were very good.'
One of her winning tactics was to open a buy position on a index, then when it drops down, she would actually add onto this losing position. 'The price rebounds back and when I see the profit, I'll take it.'
The method worked. 'By around the end of July to August, I was getting GBP700 a week. For two months, I did not have one losing trade.'
Teresa started to believe that her trading maneuvers were fool proof. 'In August, I was really spending my wins, just going bananas. I couldn't see anything going wrong except the chance that someone takes my computer away.'
But her winning streak took a nasty turn at the start of September. "When the dollar crashed, I panicked. I closed most of my positions and lost a lot of money when in hindsight, I didn't really have to lose that much.'
She says: 'I completely lost my confidence, and from then on every trade went wrong.'
Teresa considered backing out of the game altogether but her daughter persuaded her to change her mind. 'She said that I should keep going because it's something I love doing.'
After the bad run, Teresa clipped back here trading to twice a week. She adds: 'I'm not looking at trading shares right now but when I do, I'd probably buy into AstraZeneca and one of the banks.'
Her advise to would be spread betters? 'You have to believe in yourself. I started failing when I lost my confidence.'
'Stop-losses can also work against you at time', she warns. 'It's trial and error. But I tend to choose the widest stop-loss level so that I don't' get stopped out unnecessarily when the market's volatile.
To keep abreast with news, Teresa reads investment magazines, the newspapers and subscribes to several financial websites.
'But my Bloomberg TV's always on, that's my main source of news. I also spend much of the day looking at the charts, especially the S&P index' she says.
Teresa believes there is the temptation to make trading unnecessarily complex. 'I think you can make it so much harder for yourself. I have a friend in
Brighton who watches seven different screens. He ends up with information overload. The trick is to keep it simple.
Daniel Pitts's love affair with the stock market started in 1975. But the word 'love' is not one he'd choose. He made GBP60, 000 in 12 months through spread betting by following one golden rule: You need to divorce your emotions from a trade.
Keeping a safe distance between his heart and his pocket is just one of Daniel's trading tactics. Another maxim is that a trader must always have a game plan.
'The reality is that if you stand there without a game plan, you might as well write your bookmaker a cheque.'
With nearly three decades of trading experience under his belt - a passion that outlasted two (ex) wives and a combined payout of $1.2 million - Daniel has collected a wealth of knowledge about the machinations of the City.
And so, as he speeds along the motorway en route to a black tie dinner in the Cotswolds, Daniel switches his mobile phone to hands-free and parlays lessons learnt, pitfalls to avoid and the tracks of the trade.
For a start, learning how to trade is like trying to get a university degree. 'Trading successfully is not something you can achieve overnight or after three months', he says.
'It takes a lawyer or a doctor sever year to get to where they are at. It's the same with being a trader'. In his case, he says, 'It could even take 15 years.'
Daniel's worst trading lesson happened 10 years ago now, but the memory crashes back like it was yesterday. When the stock market suffered multiple heart seizures one day in October 1987, famously referred to as Black Monday, he sold all his shares in the ensuing months.
'I didn't realize that the October crash was a one-day phenomena. I spend the next six months selling all my shares and lost tens and tens of thousands.' In hindsight, he could have taken a deeper breath and bided his time.
For a man who is in the thick of the action on the bond, commodity and equity trading desks- specializing in arbitrage trading - it is curious to see him spread betting. Why is he interested in what is considered a more entry-level form of derivative trading?
'Very simply, you can trade in much smaller sizes and still get a massive exposure to the market.'
'You know, it's about always trying to search for higher yield investments and spread betting is a form of that.'
With GBP1, 000 initial capital and GBP1, 000 credit from his chosen spread betting company, Daniel started spread betting in the mid 1980s. However, a busy working life and day-to-day tasks got in the way and he stopped doing it for a while. He then picked it up when several spread betting companies joined the fray, giving prospective spread betters more choices and better spreads.
'Companies like Deal4free and ETX Capital have also benefited from being online.'
So how does he make money?
Daniel's mantra is 'liquidity, liquidity, liquidity'. His trade of choice is the German Bund (Eurex) for this reason.
'You can go in and out very quickly,' he says. 'The spreads are very tight so it's often called 'win or scratch' [win or cover your costs]'.
Similarly, he also trades the S&P index. 'There is a tremendous amount of liquidity there too.'
One of his best trades in 2003 was on the S&P index. 'I shorted the S&P at 1030 and closed at 989.' Daniel couldn't have timed his exit point better. The lowest point that the index reached on that day was 988.
'I try not to chase the market, which is very much based on technical analysis. I'm an economist by background so I prefer looking at the fundamentals.'
That said, Daniel uses charts as an aid to determine his entry and exit points.
His key tactic can be best described in one phrase: Stop or fruition.
'It's either you get the bet wrong and you close it at the stop-loss level or you take profits.'
According to ETX Capital, the average time a spread better holds onto a spread bet is five days. But to Daniel, the length of time shouldn't be the main consideration.
'Before I do any trades, I want lost of my indicators going one way. The longest I've held onto a position is two years and I got it right in the end.'
Trades do go wrong and traders should take that as part and parcel of trading.
'Look at how venture capitalists do it. They invest in ten businesses knowing that nine will go bust and that they will make money out of the one successful business.'
Engrossed in conversation, Daniel misses his turn off the highway and finally calls the dinner host to ask for directions. It's a bit of a metaphor for spread betting. After the call, he says: 'It's dark, I can't see the road signs. That's alright because I've got the map and the directions. I'll get there eventually.'
It was 7.30pm on a cold Thursday night. While most people would have called it a day and were perhaps relaxing in front of the TV, a different scenario was unfolding in a lower ground seminar room at Bloomberg's headquarters in London.
In the middle of a room, jam-packed with short term trading neophytes sat Patrick Gray, 42, a money broker at one of the largest derivatives and foreign exchanges in the country. He was there to learn more about buy and sell charting signals.
Like most of the audience, Patrick was a bit perplexed about how to interpret charts using 50% and 61.8% retracements or the overbalancing rule.
'It looks complicated' he says. But he was determined to grasp the concepts. 'Statistics show that only one in ten traders actually make money. I want to be one of the 10% who do.'
Patrick started spread betting four years ago. His first punt was on Vodafone, a spread bet made after he spoke to a client who said there's money to be made on buying options in the stock. By coincidence, Patrick saw an advert from one of the spread betting companies and decided to open an account. 'I went long (buy) on Vodafone. I made a profit but I remember being very nervous. I think it was just a GBP5 a point but it was quite nerve racking because I hadn't done it before'.
He was also nervous because, while he was aware of the risk, he had no idea how to control it at the time. 'I could see the potential of it going wrong. But I didn't know about stop-losses then.'
Patrick describes his foray into spread betting as a lunge into the unknown as he did not know anyone who did it. Part of the beauty of spread betting is being able to exit the bet whenever you want, a fact he felt uncomfortable with at the start. He says: 'I didn't realize that I could go in and out of a trade without hurting anyone.'
'If I was to open a trade and close it the next day, I felt like I was mucking them (the spread betting company) around a bit. I thought it wasn't good to take up their time because if you book something for a three-month outlook and you take it out before that, I feel like I'm giving them extra work. I was completely naive.'
Another misconception he has then was that he was betting against the spread betting company. 'I didn't know they were laying off their positions in other ways.'
That was four years ago. Patrick says today he is much wiser and much better at his trades. In the first six months of 2003, he accumulated winnings or around GBP20,000.
What are his tactics?Patrick's normal trading day starts at 5:30am when he switches on Bloomberg TV to see how the markets in Far East fared and the state of play of the major currencies. 'I look at the dollar against the yen and the euro against the pound.'
On the train ride to the city, he reads the Financial Times. 'Sometimes, there are interesting articles but most of the major news I already knew from the day before, as they were happening.'
As soon as he arrives in the dealing room, he turns on his computer and out flickers live prices of currencies, indices, the price of the shares on his watch list and Reuters news.
Patrick often bets on the German index DAX because the German market is open from 8am to 7pm. He reasons: 'Time is my biggest enemy. I would rather spend time with my family after work. They don't want me stuck in the study room at night.'
To get to the punt right, he thinks working in the money market is an advantage. 'It's part of my job to look at the trading screens anyway.' He argues that the market are interlinked and this means he can use his insight on the currency market to play the stock market.
His success at the beginning of the year did go awry after he trumpeted his wins to some of his workmates who then gave him money to bet on whatever he was betting on.
The boast backfired.
'When I bet their money alongside mine. I started breaking my own rules. I wouldn't follow my stop-losses and sometimes, I would let my bets run longer than I normally would.'
What were the lessons learning from that experience? 'Well, first, I'll always stick to my stop-losses and second. I won't get myself into the same position again.'
Ultimately, Patrick wants to spread bet full-time. 'I am trying to educate myself so I can do this a sole source of income....I aim to make GBP1 million pounds a year, that would be my goal.'
Is he being too ambitious? Perhaps not. Patrick is pinning his future fortunes on a well-planned strategy rather than just luck. 'I don't do the lottery. I cannot see the point. I bought a property five years ago that has now doubled in price. I've got a pension and if I ever have time, I would manage it.'
While most think that spread betting is no more than glorified gambling, Patrick believes that unlike a punt on a horse, spread betting gives you more control of your losses and wins. If something goes against you, you can't just let it run hoping that it will turn around.
"You can't afford to have hope in this business, it just wouldn't work. If you hang on to the hope factor, you will get carted out."
No-one would call the life of a spread better hard. "I reckon I work about four hours a day, four days a week," says Tom Farrington, who last year made £60,000 as a day trader using spread betting.
Farrington, 47, gave up his job in human resources four years ago to concentrate on his trading, and in his first year managed to make a net loss of £5,000. It was a scary start to his new career, but taught him useful lessons about the need for self-discipline.
Farrington was able to finance his first-year loss from a portfolio of equities worth £250,000 which he already managed himself. The portfolio which he regards as his long-term savings is now worth £450,000, but it is day trading that provides him with an annual income.
Spread betting was less familiar in 2000, and Farrington began by trading futures options on the German Dax stock market index, using the broker Man Financial. The choice of index may seem surprising, but Farrington says there were good reasons for it.
"I chose the Dax because of its high volatility and ease of accessibility," he says. "The FTSE was boring, and I knew too much about it; as a futures trader, it is better not to know too much about the market.".
The observation seems counter-intuitive, but reflects the trading philosophy that Farrington has developed after studying the psychology of day-trading. His investment choices are basedon technical analysis, which identifies trading opportunities according to patterns of market performance, and mainly ignores "fundamentals" such as political or economic developments.
He finds spread betting an ideal way to trade using this technique, and more sophisticated than options trading. This forced him to trade a fixed amount £17 at the time for each point the index moved, whereas spread betting allows him more leeway.
Spread betting allows the punter to guess whether a number will be above or below a given range (the spread), andthe potential gain or loss depends on how many points above or below that range the number will be.
"With futures trading, whether my confidence was high or low, it made no difference as I had to bet a fixed amount," Farrington says. "With a spread bet, I could bet as little as 1p a point and there was no limit to the maximum."
The amount Farrington bets on each point depends on his confidence level. "This means that the better trades where my confidence is justified are more lucrative."
No financial cushion is needed before starting to spread bet. But, because trading is on margin, potential losses are much higher than the initial outlay. Another downside is that the spread charged by the provider is always lost.
Farrington says spread betting is not suitable for day traders called "scalpers", who make money by betting on one or two point movements, because the spread is always wider than this.
Farrington is not a scalper, and treats his day trading very much as a business. It is a business whose profits come free of tax because the Inland Revenue treats spread betting as gambling rather than investing.
Farrington has strong views on this point. "For some people, spread betting is gambling, and so they always lose because you can't beat the house. For me, spread betting is investing; it's the way I make my living."
In 2002, Farrington's second year of day trading, he made £25,000 by remaining focused on the Dax while improving and refining his technical analysis tools. He now uses just four main technical indicators Fibonacci, volume, price spreads and moving averages.
A technical analyst plots the distance between highs or lows in market or stock performance and fits them into a coherent pattern based either on regular numerical intervals or on patterns such as the Fibonacci series.
"At the beginning I used more indicators, but these are the ones I'm comfortable with and which work for me," Farrington says. He uses software with a real-time data feed as well as a charting package, which costs him £80 a month.
But he emphasises that the charts and the software are merely ingredients in the overall mix. "You have to use proprietary tools as a starter," he says. "Over time you start seeing things for yourself.
"Successful trading means developing a trading personality. Most people make it hopelessly complicated, but by far the most critical thing is getting your head right."
The most important ingredient is self-discipline, which forces him to stick to basic rules such as setting stop losses.
"In my first year, I lost money by not behaving according to the rules," he says, emphasising the need to write a business plan. Farrington's monthly "sales plan" sets out how many pointshe must trade each day."Once I meet my daily target I stop."
He also advises would-be day traders to keep a journal. "I wrote down what I did and thought each day. You start to see firstly you're making the same mistakes again and again, but also you notice patterns that aren't in any textbook."
As well as targets, Farrington also identifies in his business plan which days he is going to work. A typical working day involves getting up at 6am to prepare for the FTSE to open. He uses City Index, the spread betting service, to bet on FTSE stocks and trades only in the first 1 1/2 hours after the market has opened.
By 10am he has switched off the computer, and starts trading again only in the first or last 1 1/2 hours of US trading.
Farrington estimates that, on seven out of 10 bets, he either makes nothing or loses money. But he is happy with the income generated from the other three bets and has no plans to work any harder at it.
"I wanted to get to whereI could earn a good salary from day trading," he says. "I have no visions of red Ferraris."
He supplements his trading income by giving day-long training sessions to would-be spread betters, and says the only thing he misses about his old job is the day-to-day contact with other people.
He does not envisage another career change. "I never get bored because markets are so unpredictable," he says. "I will go on doing this forever."
>> Page 3 - Even more Success Stories from the Front-Line
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