trader1302
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So I had a flirt with spread betting with IGIndex and thought I'd share some of the knowledge gained.
I wanted to write out a thorough-going explanation of how this con works but it was taking ages so here is a summary...
You win by betting a sum of money per point movement of an index. The provider introduces a spread which basically fixes the minimum size of the movement you can bet on. It also fixes the amount that you lose when it comes to closing the bet... I.e. index is at 100, spread is 95-105. Buy at 105. Index value is 110. Spread at 110 is 105-115. Sell at 105. Profit = 0. The movement that you bet on has to beat both the spreads in order to make money.
Naturally, losing is much easier. Continuing the above example, if the index value drops to 97, you lose three points. You then sell (and get a spread like 92-102) and lose some more. The spread works against you.
I downloaded yahoo finance data for the FTSE 350 for the last few hundred days. I calculated mean differences between the high and low prices during a day. The size of the spreads you have to beat is about the same as the average point difference for any given share. What this means is to win you can't just rightly pick the direction of the share price (which is hard enough), you have to pick the share at a low and sell it at a high or vice versa, to win a few points. However, this is a lot of effort for a few pounds so to make any decent money your bets have to be large and/or over longer periods of time. Both these factors increase risk. Alternatively, you can bet of IPOs and other events likely to create large spikes.
The longer the time period the less likely you are to get it right. The more volatile the situation, the less likely you are to get it right. The bigger your bet and the wider your stop, the more you stand to lose.
Standard gambling odds. Bet on the favourite and win most of the time, only to have it wiped out and more, when you lose. Remember, the spread works against you.
If you want to win at spreadbetting that's the game you have to play. Resultantly, most will lose. It is not a venture for the smart.
I wanted to write out a thorough-going explanation of how this con works but it was taking ages so here is a summary...
You win by betting a sum of money per point movement of an index. The provider introduces a spread which basically fixes the minimum size of the movement you can bet on. It also fixes the amount that you lose when it comes to closing the bet... I.e. index is at 100, spread is 95-105. Buy at 105. Index value is 110. Spread at 110 is 105-115. Sell at 105. Profit = 0. The movement that you bet on has to beat both the spreads in order to make money.
Naturally, losing is much easier. Continuing the above example, if the index value drops to 97, you lose three points. You then sell (and get a spread like 92-102) and lose some more. The spread works against you.
I downloaded yahoo finance data for the FTSE 350 for the last few hundred days. I calculated mean differences between the high and low prices during a day. The size of the spreads you have to beat is about the same as the average point difference for any given share. What this means is to win you can't just rightly pick the direction of the share price (which is hard enough), you have to pick the share at a low and sell it at a high or vice versa, to win a few points. However, this is a lot of effort for a few pounds so to make any decent money your bets have to be large and/or over longer periods of time. Both these factors increase risk. Alternatively, you can bet of IPOs and other events likely to create large spikes.
The longer the time period the less likely you are to get it right. The more volatile the situation, the less likely you are to get it right. The bigger your bet and the wider your stop, the more you stand to lose.
Standard gambling odds. Bet on the favourite and win most of the time, only to have it wiped out and more, when you lose. Remember, the spread works against you.
If you want to win at spreadbetting that's the game you have to play. Resultantly, most will lose. It is not a venture for the smart.
