Spread betting for dummies

[Retard]

I found two threads with amusing results.

Edited by Retard on Tuesday 4th December 11:25

[Horse_Apple]

Retard said:

Disclaimer: I've never spread betted in my life. The only time I even tried I opened up a demo account and forgot about it (while doing 'real' trading) and wiped out the full 20 grand in a day by going short on the bund during a rally... So the following could be nonsense

Basically these guys will act like a rubbish market maker, quoting a bid and an offer price much wider than in the real market, and you can hit their offer at a certain price per point, but you will need a certain level of margin to do this. I have no idea how much margin you would need for £100 per point but I would be *very* surprised if it were only £1000. In any case, because of the spread, you will be losing money straight away when you put the money in... IE if spread is x points then the share only has to move 10-x points against you for you to lose all the money. I also know that the spread is worse with guaranteed stops, which you presumably want.

Spread bets are the market price nowadays. What widens the spread is the factored in comm and then the interest on a quarterly.

So, for example, if you take a Daily on something like VOD, it is the real market price, with 10bp added per side for the comm and that's it. Funding is levied on the end of day rollover.

Margin for a bluechip is between 5 and 10% of contract value.

For some time now the large houses have been this way. Spread bets are identical to CFDs just packaged in a different way to be CGT free.

With guaranteed stops, as the broker is adopting all the downside risk beyond the deposit then an insurance premium is levied on the opening of the trade. This is typically around 30bp.

For short term traders it is pointless, but for special sits then it can be a useful tool.

All in:

Daily spread bet with a GSL is what you are looking for. BUT I wouldn't do it. It sounds like the stock you have in mind will be small cap with a hefty market spread butting you offside early. You then need to finance the position for the duration and on top of that, I've seen literally thousands of people bin their money doing this sort of thing.

[g4ry13]

Fittster said:

My mistake, a slightly different way to lose money.

Is that still going on or did it end as I suspect?

A different way to lose money, but this way you can choose your risk and the odds aren't dictated to you by the company. I think everyone gave up with it, DJC disappeared off to the beach with his bronzed babes leaving all the other mortals to scratch their head wondering what they'd done wrong and why the system failed.

I wonder if he's still running his syndicate and betting other people's money...

[shadowninja]

Horse_Apple said:

spread butting

I think this is a different topic altogether.

[Horse_Apple]

shadowninja said:

Horse_Apple said:

spread butting

I think this is a different topic altogether.

And not one I'd relish making a market in

[LeTim]

Horse_Apple said:

BUT I wouldn't do it. It sounds like the stock you have in mind will be small cap with a hefty market spread butting you offside early. You then need to finance the position for the duration and on top of that, I've seen literally thousands of people bin their money doing this sort of thing.

OP.....listen to this man. He knows his horse-apples.

[NorthernBoy]

Fittster said:

My mistake, a slightly different way to lose money.

Is that still going on or did it end as I suspect?

DJC's idiotic scheme ended as it always must, in ignominy. Of course, when someone from the business questioned him, he blew up, and stormed off.

He then posted about how financial misfortune ruled out his new GT2, but then deleted the post, and changed his story to say he was still rich, but married, and his wife was the cause of his reduced circumstances.

[Fittster]

NorthernBoy said:

Fittster said:

My mistake, a slightly different way to lose money.

Is that still going on or did it end as I suspect?

DJC's idiotic scheme ended as it always must, in ignominy. Of course, when someone from the business questioned him, he blew up, and stormed off.

He then posted about how financial misfortune ruled out his new GT2, but then deleted the post, and changed his story to say he was still rich, but married, and his wife was the cause of his reduced circumstances.

So you are still of the opinion that studying hard at school and then working hard are the best ways to get rich rather than finding a system that allows you easy pickings from the stock market. Bugger.

[NorthernBoy]

Fittster said:

So you are still of the opinion that studying hard at school and then working hard are the best ways to get rich rather than finding a system that allows you easy pickings from the stock market. Bugger.

Afraid so, yes.

Despite the posturings of so very many people who claim that trading is easy, as they know something that none of the professionals do.

Doing it for a living, it genuinely comes across just the same as the little bloke in the pub saying he could have been in the SAS if he wanted, but that they were too soft for him.

[NorthernBoy]

coyft said:

It's not difficult, you just need to use your experience and stay within an area that you are expert in. The OP is a prime example, he knows that a company will increase in value because he operates within the same area and no doubt keeps a very close eye on his competitors.

It's not difficult, is it not? OK, I defer to what must be your greater knowledge of stock trading.

Of course, you do seem to be implying that he trade on knowledge that he knows not to be public. As you know about this better than I do (I assume you took your regulatory exams), maybe you could remind me what the fine and prison sentence for this are?

Or are you suggesting that he does not actually have restricted financial information, but that he manages to deal ahead of important announcements like profit warnings and new orders without it?

[g4ry13]

NorthernBoy said:

Of course, you do seem to be implying that he trade on knowledge that he knows not to be public. As you know about this better than I do (I assume you took your regulatory exams), maybe you could remind me what the fine and prison sentence for this are?

Or are you suggesting that he does not actually have restricted financial information, but that he manages to deal ahead of important announcements like profit warnings and new orders without it?

Edb49 stated he worked in the same sort of industry and has a good idea of how profitable their next set of results will be. Whether or not that becomes insider trading i'm not sure as it's probably a fine line, but he assured us it was all above board.

Edited by g4ry13 on Wednesday 5th December 00:17

[Retard]

If other people know the information it ought to be reflected in the price. I don't necessarily believe this myself but there's a lot of evidence for it, especially in the stock market, and it's worth familiarising yourself with the theory, google emh.

[Retard]

To clarify the above a wee bit, I'm talking about the efficient markets hypothethis, and when I say I don't believe it, I would add that weak form efficiency still seems very close to the reality. Of course weak form efficiency would not argue against the plan here.

As a digression, is insider trading in the form of spread betting illegal then? Personally I'm all for insider trading anyway, it makes markets more efficient, I think it's crazy for it to be illegal in equities.

[edb49]

To clarify on some of the above queries; I don't have any financial information about the company. An analogy of the type of knowledge I have is this:

Say there was a car dealership traded with a cap of 10x EBITDA, say £10m. You live opposite the car dealership and see new stock turn up and punters driving off with their purchases. You notice that suddenly they are selling lots of Ferraris at good margins instead of Mondeos at thin margins. You see their showroom buzzing with buyers who can't buy the cars quick enough.

You deduce that their EBITDA will go up lots when they announce their next set of results, and if the market still prices them at 10x EBITDA then it will be £20m. You want to maximise your gains out of this, so instead of putting in £100 and returning £200, you can put in £100 at a high risk and return £1000.

This is pretty much what I'm talking about. I've given a simple example; the information I have to my advantage is much harder to come by than sitting outside a car dealership. I was under the impression this is totally legit trading, and it's only when I get a tip off from someone inside the company that it gets dodgy.

[Retard]

Yep, totally legal.

[Retard]

I entirely agree with that. But it's essential to understand the counter arguement.

[Horse_Apple]

coyft said:

Retard said:

If other people know the information it ought to be reflected in the price. I don't necessarily believe this myself but there's a lot of evidence for it, especially in the stock market, and it's worth familiarising yourself with the theory, google emh.

It is ridiculous to assume that the market knows everything, basic common sense should tell us that.
As Warren Buffet observes....."Naturally the disservice done students and gullible investment professionals who have swallowed EMT (efficient market theory) has been an extraordinary service to us. In any sort of contest, it's an enormous advantage to have opponents that are taught that it's useless to even try."

The price reflects 100% everything that is known, is the way to look at it.

Then, if you think the market is wrong, or that you know or see something that the rest of the world doesn't then you are probably one of the following:

1)An insider

2)A genious

3)A f4ckwit

4)A gambler

Most of us think we are '1' or '2' when in fact we are '4', which technically makes us '3'.

[edb49]

Have to disagree - I've done this before and doubled my money in a few months, with buying shares in the industry I know lots about. I've bought the shares twice, and doubled my money twice. (Which turned £10k into £40k) Maybe I'm just lucky, but either way I want to do it again, but have a higher risk/reward.

[Retard]

edb49 said:

Have to disagree - I've done this before and doubled my money in a few months, with buying shares in the industry I know lots about. I've bought the shares twice, and doubled my money twice. (Which turned £10k into £40k) Maybe I'm just lucky, but either way I want to do it again, but have a higher risk/reward.

I don't doubt you can do it, but I would still recommend first that you understand why you can't in theory.

ETA: Doubling your money in a few months is not difficult at all for a given risk level.

Edited by Retard on Wednesday 5th December 10:50

[Retard]

coyft said:

Horse_Apple said:

The price reflects 100% everything that is known, is the way to look at it.

Why assume that, when it is obvious it isn't true?

Because if one person knows the truth, then if rational they will continue buying/selling until the market reflects the correct price.