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Friday, June 17, 2011
Financial Spread Trading - Introduction
Financial Spread Trading - IntroductionAn Introduction to Trading
Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.
Quite simply, if you think a particular index, share, commodity, currency or sector will rise, you place an UP bet. This also referred to as a Long position or a buy.
On the other hand if you think the particular market will fall you place a DOWN bet (commonly referred to as a Short position or a sell).
The amount of profit you make or money you lose depends on how right or wrong you were and how much you risked per point.
Thursday, June 16, 2011
Spread Trading or Betting
I just love how the people at this site always seem to get it right, you can read the article here or go to the following link:
http://www.financial-spread-betting.com/Spread-betting-vs-trading.html
http://www.financial-spread-betting.com/Spread-betting-vs-trading.html
Differences between Spread Betting and Share Trading
Good Differences - Spread Betting Versus Trading
Leverage
Spreadbets are leveraged, so with £1k margin, if you use, say, 10:1 gearing, you can gain the equivalent to £10k's worth of shares. Of course, then it only takes the shares to fall 10% to wipe out your margin. It's the same principle as property investment (with a mortgage). With traditional share dealing more money is required to cover the same amount you could with a spread bet. Of course with leverage comes risk - ultimately it is up to you to use good judgement and use leverage wisely.
Liquidity
Many stocks aren't very liquid. With spread betting opening a trade is however very easy and since most spread betting platforms are based on the market-maker model you can close out positions quickly.
No Taxes
Right now, there are no taxes on spread betting profits. No stamp duty, and no capital gains tax if you are fortunate enough to have a gain. This situation could change. The authorities in a number of jurisdictions are studying spread betting with a view to bringing it under the auspices of the same agencies that regulate mainstream investments. When this happens it is reasonable to expect that there will be some political pressure to impose taxes as well.
There also appears to be a general consensus that spread betting is 'dirty', 'low rent', not 'nice and clean' like direct market access...that's boll0x...not paying the revenue a penny of your winnings far outweighs the spread fees involved and the image issues. Making a grand in a week and keeping it, (despite the spread trading company making perhaps 200 quid out of your efforts) is OK by me...
Going Short is the same as Going Long
Short selling is when a trader takes the view that the market, or a particular stock, is in a downward trend, or the price is about to collapse for some reason. There are a number of mechanisms to allow this belief to be exploited. The most common are short selling of the share, and the purchase of PUT options. Of course, if you already owned the share it is open to you to simply sell it, or if you wanted to retain the stock you could sell covered CALL options.
Where short selling or the purchase of PUT options is contemplated, the trader will immediately come up against a number of obstacles. In order to sell short, the broker must be able to borrow the required number of shares to sell, until such time as the trader decides to close his or her short position and buy them back. This could prove to be difficult. In addition, certain shares will not be eligible for short selling at all. These will be securities that are already at a low price to begin with. In Europe, in particular, many brokers will not allow anyone to sell short.
Where short selling or the purchase of PUT options is contemplated, the trader will immediately come up against a number of obstacles. In order to sell short, the broker must be able to borrow the required number of shares to sell, until such time as the trader decides to close his or her short position and buy them back. This could prove to be difficult. In addition, certain shares will not be eligible for short selling at all. These will be securities that are already at a low price to begin with. In Europe, in particular, many brokers will not allow anyone to sell short.
Trading or Gamblingq
The following link gives a really good definition:
http://www.financial-spread-betting.com/trading-or-gambling.html
Trading or Gambling
Fortunately, none of us serious trader types ever really gamble. We all take our trading very seriously, like a serious business person should, when they're being serious about their business. Oh, sure, sometimes we might take a low probability position like buying a Gold call every now and then, but it's not gambling. We're far too serious and far too businesslike (oh, and serious, too) for that. After all, trading is a serious business and we treat it accordingly.
Some of you may now have an inkling of where I'm going with this...
Conservatism is not the opposite of risk-taking. Everyone on the face of the earth is a risk taker unless they're dead, and maybe even then (but I can't prove it). Every time you venture out of your house, you're risking your life. Every time you don't leave your house, you're risking your life. Tornadoes, earthquakes, drive-by shootings, house fires, deadly viruses and bacteria; the world is just not a safe place. Sure, we'll all die someday anyway, but pay no attention to the man behind the curtain because fatalism will harm you as a trader. Most of the time for most people, the risks that are assumed and taken minute to minute are small enough that we don't really even think about them. Yeah, an airplane might fall out of the sky and hit us, but probably not. It's not something that gets above the worry threshold.
"The line between investing and speculation or gambling in financial markets is always a pretty gray one," he says. "And speculation is always a motive."
"But Stiiiicks," you complain, "you're missing the point. Risking and gambling are different. I control risk in my serious business of trading. Actually, it's that serious, businesslike attitude that separates me from the gamblers. I mean, I'm cautious and careful, not like those frivolous, arm-pulling, dice-throwing, chain-smoking out of control monsters in those Vegas casinos. I'm a speculator... no, an INVESTOR. I even keep my tie on when I do my end-of-day analysis. I control risk, therefore I do not gamble."
Well, guess again. Yes, we most certainly are gamblers. Let's start with a dictionary definition. This one is from the 1981 American Heritage Dictionary:
1.a. To bet money on the outcome of a game, contest or other event.
2. To take a risk in the hope of gaining an advantage; speculate.
1. (v -tr) To expose to hazard; to risk.
This, my friends, is dead on target. Trading is most definitely gambling. You buy or sell an option or a contract because you have a belief that the market is going to behave a certain way. I don't care how confident or arrogant you are about your methodology, you do NOT have tomorrow's paper and you do NOT know for certain which way the market will go. You are therefore making a bet on the market. You may as well just call up your broker and tell him, "Five hundred bucks says Corn goes up next week." The only difference is that your broker does not say, "You're on," and take the other side of your bet. Another gambler in the market does that. The broker is the bookie.
Sure, you are "allocating margin", or "purchasing an option", but fundamentally you are betting money on the uncertain outcome of an event (that being the trading that takes place at the exchange).
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