Tuesday, 22 March 2011

Requirements for trading

In this post I will talk about the three main requirements for trading.

  • Capital
  • Time
  • A good Broker/Dealer


You can start trading with as little as £20, but I wouldn't recommend it.

With traditional investing, the more money you have the higher profit you can make from your investments, as the return is proportional to your capital used. It means that the more you invest, the less the equity's (or any other financial product) price needs to change proportionally to cover your transaction fee

With spread betting you must provide some deposit for your margin requirements, which vary with product to product. Beyond this, you can provide as much capital as you want to your account, however again like traditional investing, the more the better. Whilst ideally you should never need it, larger stop losses can prevent you from losing any money at all. Many times I have hit my stop loss due to limited account funds and then moments later the price has shot back up to where I wanted it. But although a larger stop loss would have prevented this from happening many times, there have been occasions when the price hasn't gone back to where I wanted it, and the closer stop loss has prevented me from losing more money. So again this needs to be looked at a case by case basis.

The main rule which I'm sure you will have heard before is "Don't bet what you aren't willing to lose".


Investing in financial markets can take up a lot time. This time should be used for analysing potential investment opportunities, managing your portfolio, and keeping up with the market. The more time you give your investments, the better you will do.

A good Broker/Dealer

There are a lot of different Broker/Dealers out there. As a spread better I look for the dealer that can give me the tightest spreads and lowest minimum stakes. When looking for traditional investment brokers the main you should be looking for is a small transaction fee.

Is it a good time to invest?


It might seem like a bad time to invest, with the conflict in Libya, the Japanese crisis, worries about nuclear power, and general uncertainty in the markets.

Uncertainty in the markets can increase chances for profit. For a spread better like myself, I can take advantage of the fluctuations in the market and make quick bets for a tidy profit!

Due to uncertainty, the prices of many stocks and other financial profits are more likely to be further away from their long term price. Thus the difference between the real value of a firm and the markets perception is likely to be higher. According to the efficient markets theory, the price will eventually reflect the products real value, and, if you have invested, give you a tidy profit (or loss) of the difference.

Monday, 21 March 2011

Economic Calendars

Economic calendars are essential to any trader. They provide information about the upcoming economic events that might affect markets, events that good traders take into account when creating their trading strategies.

My free economic calendar of choice is provided by bloomberg, and can be found here.

This particular calendar shows a good level of detail on each event and accurate ideas of the markets predictions. Generally, if a report for example is predicted perfectly by the market, then the release of information should do very little to the financial product price.

The events vary in importance, there are some that I try to avoid when trading. If a GDP report for the U.S is due to be released the next day, and I have no predictions for it, then I will not be as inclined to short term invest in a stock as the report could have a dramatic influence on its price. Alternatively I could have a prediction for an event and invest accordingly.

So I urge you, if you start, or already are trading, please use your economic calendars!

Spread Betting - Part 2

Financial products have a bid and an offer price. When someone says that the price of BP's stock price is £465, they are stating the last traded price.

So what are the bid and ask prices?
The bid is what you can sell a product for, i.e the best price at which people are bidding and willing to pay for it.
The ask is what you can buy a product for, i.e the best price at which people are asking and willing to sell for it.

The bid-ask spread is the difference between the bid and the ask price. (simple huh?)

In spread betting you bet a stake per point. I think it's best if I show this through an example.

Let's say that the stock I am looking at is HSBC PLC.
Its bid price is 635.0 and its ask price is 637.0.

If I expect HSBC to fall in price then I might sell the stock, in this case, at the price of 635.0. I'm quite confident so I have a stake of £30.

Immediately I am at a loss of £60 because the minimum that I can buy it back for is 637.0 still. I am limited in funds and only have £300 in my account, so cannot let the stock fall below this price else I would be in negative equity so I put a stop loss at this point (645.0). This means that when the bid price hits this level, my position will be closed and I will be at a loss of (£30*10points=£300).

Luckily however for me, investors might lose confidence in HSBCs and cause the stock price to fall. Its ask price falls to 630.0 and I decide to close the positon with £30*5points=£150 profit!

I hope this post has given you an idea of what bid and ask prices are and how to perform a basic spread bet. An important lesson being that the second you put on a bet, your position is in loss due to the spread. Which is why you must look around for the best spread betting provider who can give you the tightest spreads.

Spread Betting

I decided my first post should be about financial spread betting because for me I believe it to be the easiest way to make a lot of money from not a lot!

Traditional trading involves buying and selling financial products (be it equities, forex, futures or whatever). Trading in this way however can limit your potential gains as you are limited by trading fees and your return is only proportional to your investment.

So if I only had £70 and my brokers fees were £10 per trade then (at the time of this blog) I could purchase one stock of Lloyds Banking Group PLC for £60.
For me to make any money, Lloyds Banking Group PLC would have to increase in share price by nearly 17%. A large increase by anyones standards.

Spread betting is different however, it is a form of leveraged trading which allows you to make far more money (and of course, potentially lose far more) than traditional trading. Instead of your return being proportional to your investment, it is proportional to the change in the price of the financial product.

Whether you are buying penny stocks or a high value stock such as Berkshire Hathaway Inc, which at the time of this post is nearly $128,000. You bet on the change of price in points.

Here is an example:

If I believed that Berkshire Hathaway was going to rise in the coming days, I would not be able to invest traditionally in that stock because I havent the funds. I can however, through spread betting, and here is how I would go about it.

I would "buy" Berkshire Hathaway Inc for (lets say) $1 per point, at $128,000. I wouldn't need $128,000 in my account, I would simply need the deposit, which I will talk about in later posts, but for simplicities sake, let us say I put in $1000 originally.

If the next day it has risen to $129,000 then I could sell and make a $1000 profit, doubling my money!

I hope you have enjoyed my first post and hopefully learnt a thing or two. I will continue posting about spread betting in the coming days to give a full overview of the subject, then I can move onto some more advanced topics and trading tips!