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Spread betting strategies inspired by lemmings, an insight to momentum spread trading

By on February 9, 2011 in financial spread betting

Investment guru’s love investing clients money for the long term. Essentially it’s an educated guess that the value of the assets selected will increase long term. Warren Buffett, the legendary investment grandee, of Berkshire Hathaway fame (the investment company the Buffett controls) sings the praises about value investing. He’s said, “be greedy when other are fearful” and vice versa. Well it’s certainly worked for Buffet, but would this strategy work for spread betting traders? Probably not.

Not all investing grandees recommend value investing techniques. Three professors at the London Business School (LBS) have gone on record to say that that momentum investing is just as good or better than taking a value approach. This article expands on the professors’ conclusions and see if the same principles can be used for momentum spread trading strategies on financial markets. Comparison will be made to momentum investing and value investing.

Spread trading can not use the principle used by value investors because value trades or investments are done for the long term, whereas spread trades are normally for no longer than a few months. If a trader chooses a company to trade based on a value based approach it could be years before an entry into the trade can be made. That’s because value based stock selection involves getting a company that has been undervalued by the market. Based on the idea that markets are irrational and that sometimes good companies get missed by the markets. The trouble is these undervalued stocks can take years for the share prices to increase. Markets can also be said to be irrational because bad stocks can perform very well. This can happen if the share is in ‘vogue’ or it is in a sector that is popular with fund managers.

Spread trading relies on predictable movements in the price of a company’s shares. Momentum makes this much easier and in the words of the Economist “the momentum affect is huge”. Especially if there is massive stimulus from outside sources such as the Federal Reserve of the USA operating a very loose monetary policy. The case for a momentum spread betting strategy is strong.

momentum spread trading

Spread betting strategies inspired by lemmings, an insight to momentum spread tradingunratedEditor2011-03-05 10:04:31Investment guru’s love investing clients money for the long term. Essentially it’s an educated guess that the value of the assets selected will incre…
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A contrarian spread betting strategy using the fear gauge

By on January 24, 2011 in financial spread betting

This post is not so much about a spread betting strategy but an indicator that can be used to predict when the markets (share markets) will turn. The VIX index AKA the Fear Guage is a good indicator to use when spread betting shares. At present the markets are getting quite frothy, rampant even. The reasons for this include the massive injections of money into financial systems in the western world. It has given some people watching the markets ‘the shivers’, as quoted by Alan Abelson on Barron’s.

So what’s the VIX index and how can it be used for spread betting

Share markets are often said to be driven by fear and greed. It’s comes down to crowd psychology where there’s an event that makes everyone either greedy and wanting to invest buy more, or fearful of the future causing ‘the crowd’ to sell like crazy.

The VIX index measures expected volatility in markets by using clever algorithms based on the options market. In basic terms options can be used as a form of insurance by professional investors against a large drop in the market.


How can the VIX index be used as part of a spread betting strategy?

Spread betting relies on market volatility. Share prices must be moving either up or down for a spread trade to become profitable. As an gauge of expected volatility the VIX index is great at indicating when market will turn. Not exactly when, but it’s enough to focus the attention. Combined with traditional and simple spread trading techniques such as looking a price charts, simple moving averages and volume of shares traded it forms a powerful indicator.

A low reading on the VIX index is an indication of calm in the markets. What spread traders watch out for is a sharp reversal in the index. This would foretell a sudden change in sentiment which is a high probability indicator that markets will drop. Quickly and by large amounts. A high reading indicators significant fear in the market and normally accompanies lows points in the market.

how can the VIX index help with financial spread betting

A contrarian spread betting strategy using the fear gaugeunratedEditor2011-01-23 11:58:58This post is not so much about a spread betting strategy but an indicator that can be used to predict when the markets (share markets) will turn. The…
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Compare financial spread betting order types

By on August 17, 2010 in financial spread betting

Financial spread betting without orders would be very risky indeed. You may have noticed this message all over spread betting company websites “Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.” It’s worth comparing the spread betting order so that the risks can be reduced and the rewards amplified. Orders are triggered automatically so the trader doesn’t even need to be there. Let alone worry about the risk.

The word leverage here, means that the value of the bet can be worth more than the amount actually staked. It has a similar meaning when a company borrows money to boost profits. The company uses leverage. Spread betting works in a similar why. Say you decide to spread bet the FTSE 100. You buy the market at 1£ per point. The market rises 10 points by the end of the day. At the close of trading your spread bet will be worth £10. If you close your bet you will get nearly a £10 profit for only a £1 stake. That’s leverage. Of course it works the same the other way. It’s not only profits that get magnified it’s loses too: a reason why spread betting can carry a ‘high level of risk’. This leads us nicely to the point of spread betting orders.

compare spread betting orders

Compare financial spread betting order typesunratedEditor2010-09-22 11:03:30Financial spread betting without orders would be very risky indeed. You may have noticed this message all over spread betting company websites “Sprea…
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A time consuming job, finding the best spread betting margin rates

By on May 6, 2010 in financial spread betting

Finding the best spread betting margin rates can be a time consuming exercise. There is no one place to compare spread betting margins rates. The reason being is that margin rates are an integral part of how spread betting companies make money. They can change margin rates and any time. There are also different margin rates quoted for different markets and each spread betting company can calculate rates in different ways. This post will look at what a spread betting margin rate is, compare margin rates, and talk about the margin call.

Who knows the spread betting companies may decide to make this information easily available so that it can be collected a presented to those who want to compare margin rates. Rather than concentrating on margin rates alone, it’s probably better to weigh up the benefits of the different features on offer. Viz, ‘the spread’, commission rates, trading requirements, and customer service.

Again, depending on the market that interests you most the features available, and those that will give you optimal trading for your style will vary.

What is trading on margin?

Trading on margin is like having an open line of credit from the spread betting company. A little bit like a revolving credit facility. It enables you to trade with more money than you have in your account. The margin rate takes is calculated as a percentage of the liability on each trade. Trading with a margin rate of 10% would mean that you would only need £100 to trade up to a liability of £1000. This is one reason why spread betting on margin is such a good way to leverage or gear up your trading or investing portfolio.

Compare margin rates

A time consuming job, finding the best spread betting margin rates unratedEditor2010-05-06 04:18:13Finding the best spread betting margin rates can be a time consuming exercise. There is no one place to compare spread betting margins rates. The re…
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Roll over roll over said the trader, what are roll over spread bets?

By on May 1, 2010 in financial spread betting

Not all good things have to come to an end. Well, so quickly any way. You can extend the life of a spread bet with a rolling it over. Spread bets are either daily, or are based on the expiry dates of futures contracts. But, a spread bet doesn’t normally last longer than a few months at best.

If you have a winning trade which is gathering momentum you’ll hardly want to close the trade early. Or, if you’ve got a losing trade which you’re certain will reduce in size or even turn positive there’s no point in closing when you can reduce or eliminate the loss.

This post will examine a rolling share bet to highlight what a rolling spread bet is. This has been reinforced using some examples. Finally the post explains some of the advantages of a roll over spread bet.

What is a rolling share bet?

Rolling share bets, or daily share bets, mirror the underlying share price and include a small spread that is a percentage of the share price. A rolling share bet is a daily bet that can be automatically rolled over to the next trading day. This involves closing and re-opening the bet at the day’s official mid-close for the share (unless the bet is closed naturally). The rollover is actioned at around 16:30 hrs for UK shares and around 21:00 hrs for US shares; the bet will continue to roll automatically and indefinitely if funding is available in your trading account.

You can also spread bet futures contracts, typically futures contacts are dated every three months. Spread betting rolling contracts gives your trade a ‘time value’. You have time for the price of the underlying asset to appreciate or depreciate depending on whether you have traded long or short. You may also choose to roll over these bets so as to give yourself more time to profit from your trade.

example of a rolling spread bet

Roll over roll over said the trader, what are roll over spread bets?unratedEditor2010-11-07 05:39:10One of the maxims of successful trading is letting successful trades run. A rolling spread bet will help you do exactly that.
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