Spread Betting, Day Trading And Futures Explained In Plain English
Spread betting, day trading and futures explained in plain English Have you ever been attracted by some of the more exciting financial opportunities often written about in the media? Spread betting, for instance? Day trading? Futures? Those promoting these strategies speak of the potential for massive gain. It is possible, they claim, to double, treble, quadruple your cash – or more – in the shortest possible time. The idea of making a vast profit in a matter of weeks, days, even hours, is – of course – extremely tempting. So this week I thought I would explain how these much publicised financial instruments work. Spread betting has garnered a great deal of attention over the last few years. Its appeal lies in the fact that it allows you to bet cheaply on the rise or fall of an asset without actually owning it. Historically, if you wanted to trade in different markets – such as international shares, indices, property or commodities – you had to use a variety of different methods to do so. Not with spread betting. You can get exposure to a market instantly, with only a small deposit – typically about 10% - 20% of the value of your bet. In other words, a £1,000 bet could cost you as little as £100. What’s more, there is no commission to be paid, no stamp duty on dealing and no tax to pay on winnings. How does it work? A spread betting firm will predict where an individual share or market will stand at a future date or period of time. They won’t name a specific price but rather an upper and lower range. This range is referred to as the spread. You can then bet on the spread in one of two different ways. If you expect the share or market to be above the spread you can buy at the high end. If you expect the share or market to be below the spread you can opt for the low end. This is best explained with an example. Supposing a spread betting firm is quoting a spread of 6,100 – 6,110 for the FTSE 100 during January 2007. If you feel this is a bit pessimistic you might decide to bet £100 a point above 6,110. Any time before the end of January you can close your bet and take your gain or settle up your losses. Let’s say you are right and the index climbs 50 points to 6,160 at which juncture you close the bet. You will collect £5,000 (50 points x £100). Let’s say, on the other hand, you are wrong and the market falls 50 points below the top end of the spread to 6060 (6,110 less 50). Your error of judgement is going to cost you £5,000! Basically, the more the market moves in your direction the more you stand to gain and the more it moves against you the more you stand to lose. It is possible to limit your losses by paying for something called a ‘guaranteed stop-loss’ but the cost is usually so high as to make the chance of gain almost impossible. Day trading first came into the news about six or seven years ago as a method by which small, private investors could make money from the stock market. The name says it all. Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. It was the result of two phenomena. The first was greater market volatility with prices of some stocks – especially in the information technology sector – rising or falling by a substantial amount each day. The second was lower dealing charges allowing investors to buy and sell for a relatively low cost. At the heart of the concept is the idea that you need to close your position at the end of each trading day – taking your gains or losses then and there. Putting your money into a futures or commodity contract also holds out the promise of substantial gain. As with spread betting, commodity trading involves predicting the price of a particular commodity – anything from gold to frozen orange juice, and silver to pork bellies – at a specific point in the future. And, as with spread betting, gearing plays a big factor in the activity. Its history, however, is rather more respectable. These contracts were originally a way for manufacturers to reduce their risk. For instance, in the days when silver was more important to the photographic industry than it is in this digital age a company like Kodak might contract to buy a set amount of the metal a year before they actually needed it at a pre-agreed price. On making the contract they would traditionally pay a deposit – usually 10% of the total contract value. Before long it was realised that this was a way in which anyone – not just manufacturers - might make a great deal of money. How? Like this. Let’s say you think silver is going to go up in price. You pay £10,000 to purchase a £100,000 contract. If you are right and silver goes up 10% you make £10,000 – doubling your money. On the other hand, if silver falls 10% you lose your £10,000. And if it falls 20% you would lose an additional £10,000. You may have noticed that in describing these three different methods by which it is possible to make – or lose – a small fortune I have not once used the words ‘investment’ or ‘investor’. Spread betting, day trading and futures are all out and out gambles.
Other Trading Tips Articles
Are You Fulfilling Your Destiny? There is something that you are uniquely designed to do. Maybe you are already doing that. Maybe you are not.Let me run some questions past you just to make sure: Do you spring out of bed every morning with boundless energy, eagerly wanting to throw yourself into the day ahead?Does your work fulfill you to the point wh ...Options Trading Strategies Webster’s Dictionary defines the term strategy as “ 1 a) the science of planning and directing larger scale military operations, specifically (as distinguished from TACTICS) of maneuvering forces into the most advantageous position prior to actual engagement with the enemy b) a plan or action based on this. 2 a) skill in managing or planning, es ...My 7 Most Important Business Lessons Millions of people start new small businesses in the United States every day. Many fail at running a small business every day. What causes one business owner to succeed where another fails? There are seven key areas to focus your efforts for a successful small business. It starts with knowing oneself and ends with not being afraid to ask for hel ...How to Detect Fraudulent Wholesalers and Companies? Recently there has been an influx of fraudulent wholesalers and dubious bulk discount stores on the net. This article concentrates on how to detect such companies and what necessary checks must be carried out before investing in any business venture.To detect whether the wholesaler or the company, being dealt with is genuine or not, these ...Silver Jewelry History That Became Legend Part III – The Lydian Trite Asia Minor And Its History And LegendsDuring the 6th and 5th Centuries before Christ, the Lydian empire with its impregnable capital of Sardis perched high on Mount Tmolos changed world history. Contrary to the neighboring Phrygians, who had been in Anatolia since just 1200 B.C., the Lydians were an ancient race whose origins were ...NFL Trading Deadline is Tuesday - Who Will be Traded? As usual there are several trade rumors going around. This year they mainly revolve around Randy Moss & the Oakland Raiders. Speculations are that there are two different teams with serious interest in aquiring Randy Moss from the Oakland Raiders. Which two teams could they be, well the front runners are the Arizona Cardinals, because of Denny G ...Understanding Stock Charts - A Few Basic Tips Stock charts can provide a wealth of information if you know what to look for. Stock charts also come in many different forms, styles, and types, but a few basic charting skills can be used universally across all charts. In addition, when used in conjunction with other stock indicators these basic charting skills can help you greatly improve y ...How To Safely Trade Bonds So That You Actually Make Money Trading bonds can seem a bit difficult compare to stocks, because there's no central exchange for trading bonds. Still, once you learn what you're doing, trading bonds becomes a lot easier.To start, you need a brokerage account. It's your choice whether you go with a full-service broker or an online trading account. Possibly your own l ...Currency Technical Analysis Part 3: Dow Theory – Bull and Bear Markets In previous articles, we’ve looked at the history of Dow Theory, and why it's the best theory ever, for currency technical analysis.The logic for spotting the big trends follows - and it’s these trends that we want to catch - as they yield the big profits!Hamilton identified three specific phases, in both primary bull markets, and ...Stalking Alligators In Florida Alligators were the furthest thing from our minds as my wife Ana and I traveled along the coast of northern Florida. We had paid $23 to camp in our conversion van at a beautiful state park on the beach the night before. In the morning we saw a dolphin swimming near shore.Then we heard we could camp for free at the isolated campgrounds whi ...Your Guide to Learning a Forex Trading System There are a great number of people in America that are interested in investing in order to make a tidy profit. There are many ways to invest and many ways to make profits by investing. One method that has been gaining in popularity is that of the Forex trading system. If you are unsure of what this is, let me explain. Forex stands for foreig ...Is Your Autoresponder Truly Promoting Your Company? Getting other people to promote your web site is one of the most popular Internet marketing methods around, today. Affiliate relationships are all the rave with people who have web sites. Web marketers worldwide are trading links everyday, in hopes of driving each other's traffic to their respective sites. This is certainly something any hard ...Online Trading : Three Ways To Make More Money Online Many people today are rushing to get started in the investment game by opening online trading accounts with the largest brokers in the USA today. However, many people are also losing money each day due to either a lack of trading knowledge or merely having the gambling mindset when doing online trading.This article highlights there essen ...Ten Ways to Build Client Trust Clients work with professionals whom they trust. Building trust is an ongoing process. Here are 10 ways to build trust with both old and new clients.1. Keep your agreements with your clients – If you promise delivery on a particular day, make sure to deliver when it was promised. Even something as small as the time you have sche ...How You Can Work at Home With Currency Trading and E-currency Exchange Program If you are reading this you probably are looking to work at home. Everyone now a day wants to work at home and spend more time doing the things they love the most. Ever dream of spending time with your loved ones, taking vacations to the islands, or buying that car you always wanted.90% of people that try to work at home FAIL. Why do they ...Don't Short-Change Yourself by Not Understanding Money Exchange Rates One pesky problem you may encounter while on vacation in a distant country is the varying value of currency. Your vacation will be more relaxing if you are familiar with the intricacies of money exchange rates. Every country has its own monetary system, meaning their currency is different than yours and its value fluctuates constantly. For insta ...Options Trading An option is a contract that gives the buyer the right (but not the obligation) to buy or sell a specified quantity of a given asset, at a specific price, on or before a specified time. Unlike futures trading, the purchaser of an option is not obligated to buy or sell at the exercise price, and will only do so if it is profitable; if the option ...Online Forex Trading - Beginners Guide When it comes to forex trading, understanding the terminology and the forex trading strategies before you begin is vital. There are many web based companies that provide online forex trading tutorials that revolve around real time forex trading. Using a forex tutorial will give you the beginner knowledge you need to take part in trading forex. ...Where to Invest Your Money If you are new to investing, or even if you've been playing the market for a while, investment options can be overwhelming. Stocks, bonds, mutual funds. How do you pick the best place to invest your money? That's quite a decision!Here are some tips that can help you get started:If you are planning for a long-term investment, it may ...Tips for Remembering Names Is remembering names a challenge for you? It sure is for me. Sometimes I feel incredible embarrassment when I have forgotten the name of a person who was introduced to me 30 seconds ago. If you suffer from "can't remember names syndrome," consider the following tips.1. Give your full attention to the introduction. Don't get caught shaking ...The Lazy Person Secrets To Overnight Wealth And Fame There are so many simple, yet really sure-fire ways of acquiring wealth, it's a wonder everybody with even the least bit of ambition isn't already rich. When you come right down to it, the only things needed for anyone to make bundles of money are the long-range vision and the energy to put a money-making plan into force.One of the easies ...How to Achieve Currency Trading Success: Part 1 Currency trading success can be achieved by anyone, as everything about trading currencies can be specifically learned, by any trader wishing to put it in the time and effort to do so.Trading currencies successfully is a combination of two factors:Firstly, you need a successful trading method for long term currency trading success ...Ways to Play Defensively We don't consider playing defensively a way of buying "safe" stocks because safe stocks won't make you any money. We need movement, but there are ways to help you survive huge mood swings that the momentum stocks can display. Today we are going to look at the idea of "averaging down" and if it is a good idea or not. It is not an easy answer. ...How to Analyze the Veracity of Investment Newsletters When trying to analyze whether a promotional ad for an investment newsletter or a market timing investment trading system is worthy of investigation, the following questions should be asked:Does the strategy have a track record? Without this you are really allowing your emotions to be in play. All of us want to believe that if someone say ...How to Make Money By Trading Shares Trading in shares of different companies presents a unique opportunity to make money within a short time. But there are some important points, which have to be considered before start trading in these shares.1. Research about the company before buying a shareA thorough research is required to be carried out before ...Ten Tips for Translating Your Business Card International business today necessitates people travel all over the world for meetings, negotiations and other business functions. Along the way one will meet numerous people that all have the potential to give recommendations, pass over work or provide some sort of benefit. The business card is the key to remaining in their sphere of contacts. ...Young and Single I have had the great fortune of selling a loft right before the Holiday Season to a new and young Client of mine, who goes by the first name of Michael. Michael, who must have told me ten thousand times to call him Mike, has taken me for a tour of all miniaturized condos and lofts available in Downtown Vancouver. In fact, I must confess t ...Teeth Whitening: Are You an Ideal Candidate? Most people today place high importance on appearance. For many, having a set of good, white teeth is vital for looking good in public. Just look at how many teeth whitening products are currently available on the market.Teeth whitening is a great way to improve one’s appearance and smile. However, there are two questions that concern thi ...How To Pick A Good Forex Broker If you are doing forex trading, then you know the importance of a good forex broker. This is especially true if you are just starting out and do not have a lot of experience. A good forex trader will work with you and provide the information and tips you need to make the best trading.Even though your forex broker will be offering you tips ...
|
