Financial Spread Betting (Part 2)
In my last article we talked about the basics of financial spread betting. I discussed how you can earn money in spread betting by buying and selling through spread betting brokers. We also talked about the two way quotes brokers use and how the brokers profit without having to take in commission by simply buying at your bid price and selling at their offer price. Now the question left unanswered is what happens if the index keeps on falling instead of rising? Just how much money would you lose?
First of all if the downward trend in the market seems to be just a temporary dip you might not want to sell immediately. If the chances are that the market will recover and rise higher soon after the dip you might still be able to make a profit from your seemingly bad bet. However, if factors dictate that the market trend is really spiralling downward then you should probably close your position and sell before you lose any more money. It’s better to be safe than sorry!
In the last example we used you bought $1 of the FTSE Index at 4004. That means that you spent $4004 on the purchase for something that’s actually worth $4000. Now if the market goes downward and you want to bail out you need to ask your broker for a new quote. Let’s say that your broker gives a quote of 3800 – 3804 then just like in selling to get a profit you have to sell at the broker’s bid price, which is $3800 in this case. Since you bought at $4004 and sold at $3800 you would have lost a total of $204.
This all might sound disheartening to you, but as I told you the last time financial spread betting is not for beginners. To earn big profits in financial spread betting you need to have a solid background in spread betting and have a good feel for the market. This is not like sports arbitrage where you can participate without knowing much about the subject and still earn money.
One of the things you need to understand if you want to dabble with spread betting is the months in which you can and should choose to trade. Financial spread bets have a set time limit with bet contracts automatically expiring at the end of the set time. Most financial markets use the months of March, June, September, and December as their months of expiration.
It is advised that you trade the nearest month to expiration. So for example if it’s August then the nearest month to expiration is clearly September. Trading this way is usually done if you want to go for long and know that what you’ve bought will rise in the long run. If you want to deal with short term trading though you can ask your spread bet broker about the weekly and daily bets that they offer. Most spread bet brokers offer these too.
Warning: This introductory section teaches only the basics of financial spread betting. Before you decide to deal in spread betting with your hard-earned cash, please read more about the topic in depth.
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