Spread betting is an investment strategy that enables you to make money off the price movement of an asset, without taking actual ownership of it. As a spread better, your strategy would involve speculation that the price of an asset like gold would go up or down. Based on your expectations you take a long or short position (buy or sell) on a particular asset and hope to make money on the outcome.
You can spread bet on thousands of global assets, which would include currencies (forex), commodities, indices and shares. Examples of actual assets are EUR/USD, GBP/USD, crude oil, gold, #AMZN, #TSLA, S&P 500 and FTSE 100. These assets and many more are available on the best spread betting apps which can be found here https://tradingguide.co.uk/awards/spread-betting-apps.
One major advantage of spread betting vs traditional ‘buy and hold’ investing is that you are not charged stamp duty or commission. The broker offering you this platform makes money by giving you a price slightly higher if you are buying, and slightly lower if you are selling.
What is the best spread betting strategy?
Put simply, there is no hard and fast rule about making a profit through spread betting. There is often a lot to think about when you want to spread betting. For example, a good spread betting strategy will take into account the amount of funds and time that you have at your disposal. Your personality also plays a big role in this so the truth is that it takes a lot of time and persistence to develop and test a strategy that earns you profits. In fact, not many people are able to accomplish this so it is very important to take your time before risking any money on spread betting.
To make this process a bit easier for you, we are going to highlight a number of spread betting strategies that many traders use to improve their chances of success.
Scalping
This is one of the most commonly used spread betting strategies. Scalping is a strategy that is based on the concept of quitting while you’re ahead and cutting your losses as early as possible. In this case, the spread better will open and close numerous positions in different assets with the intention of making a profit from the small price fluctuations.
The biggest advantage of scalping is that your capital is preserved and so you live to trade another day! Needless to say, your capital is the most important asset when it comes to spread betting. If at worst, you fail to make any profits but retain the funds that you began with, this means that you are on the path to success.
On the other hand, scalping requires that you stay glued to financial markets, always looking for opportunities. This might not sound like a lot of work but if you lack the discipline or you are not patient enough, you will make many bad decisions. Unfortunately, a few bad trades often lead to more bad trades leading most spread better to completely throw caution out the window.
Market Trends
Spread betting can be confusing especially when you have no idea of the direction in which the price of an asset is heading. In this case, piggybacking on an expected trend can really help you preserve your capital, and even make profits. It sounds like a straightforward and sure way of making money but the truth is that a lot of research goes into preparing to capitalize on a market trend. A disciplined spread bettor will tell you that before opening any position, a set of conditions will need to have already met.
On March 24th 2021, Elon Musk tweeted that Tesla would allow customers to buy cars using bitcoin. This resulted in a huge surge in the price of bitcoin. Buying bitcoin after Elon Musk made this announcement is a good example of following market trends. Of course it is important to note that prices don’t just take a definitive direction in an instant so it may take some time for a trend to appear clearly.
Reversals
As the name suggests, a reversal is what happens when a trend changes direction. It is a spread betting strategy that requires a great deal of research as it is very easy to mistake a price fluctuation (pull-back) for a reversal. Quite often, most people realize that a reversal happened long after the professionals have analyzed the specific asset and realized that there is a deficit in supply and demand. If done correctly, a spread bettor will benefit heavily from entering a trade in the right direction when a reversal occurs.
Break-outs
A breakout occurs when the price of an asset surges strongly above or below a certain level that it has not gone beyond for a relatively long period. Spread betting using this strategy means that if you feel that price will not go below a certain level, you buy and place a stop loss a few pips below this level. Inversely if you feel like price will not go above a certain level, you go short and place a stop loss a few pips above this level.
The good thing about this strategy is that it cuts your losses quickly if your prediction is wrong. The downside is that sometimes the price of an asset will still hit your stop loss then continue in the direction that you had predicted initially. So it is important to set price stops within a realistic range and also to use a position size that will not wipe out your entire account.
Tramline trading
This is a spread betting technique that is often reserved for the more experienced traders. It involves charting and graphing the behaviour or price movements of an asset over an extended period. When you take a step back and look at the graphs, one often sees a ‘bigger picture’ that can sometimes indicate a cycle that you would probably not see when you look at the short term.
Often the price movements will point towards certain levels at which the price changes direction or pulls back. Connecting these levels with a line sometimes levels patterns that you can take advantage of quite easily. Remember, if you can see the pattern, institutional investors will most likely have seen it too. So stay vigilant and trade with the focus of capital preservation and profit making!
