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Is spread betting for fools?

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@nit2wynit

If you purchase £1k of shares then you purchase £1k of shares. The point of Spread Betting is that to have a position worth £1k you do not need to stake £1k and instead can stake a margin. I accept it is not for everyone and is a more riskier mechanism so those who do not feel comfortable with the risks this mechanism presents should steer well clear.

Spread Betting has its place but it is merely a tool that can be used to trade. Just like CFD's, Futures, Stock Broking Accounts, etc. Each one will have its advantages and disadvantages and it is down to the trader's trading strategy that will help determine which they should use and which they should not. 

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@TrendFollower Sure i understand that.

But my point is to make money as quickly as I can as safely as I can.  Some Small Cap stock can be considered Safe!  Clear Trending upwards for instance.  But to make any gains with a small £1000 account requires either a Large Price Per Point and Narrow Stop Loss OR Small Price Per Point and Wide Stop Loss.  The only downside to this is the Time it takes to generate a profit, which will also tie up my funds.

As stated earlier, with £1000 available as an example, i can purchase 11,500 Motif Bio.  If it only moves half a penny i can make £575 profit.

This is impossible to do with SB and a £1000 account.  To make the same gains would require a PPP cost of £1150, a Stop Loss of 4pt or £4600, and a Margin of £2830.

Tell me something.  What do you recommend Do to make money as a Day Trader?  Spread Betting or Share dealing?
Thanks.

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@nit2wynit,

If you want to make money quickly then that presents an increase in risk, but at the same time if you want to do this as safely as you can, it entails a sound risk management strategy.

I am not sure about some small caps being considered safe! As someone who trades micro and nano cap stocks which are even more higher risk than small cap stocks I would say that these stocks attract a lot of 'Pumping' up the price and speculative capital. This creates a 'bubble' especially when you see breakouts shooting upwards like rockets. Now I accept these are great trading opportunities and if one can profit from them then there is nothing wrong with that. They are extremely high risk as these stocks tend to be far less liquid than larger caps and there is a lot more volatility too. 

It is not for me to recommend anything to you. You must look at your 'Trading Goals' in your 'Trading Plan' and then pick the most effective and suitable 'Trading Strategy' to help you successfully execute your 'Trading Goals'. You must develop and test a trading system which yes involves 'Back Testing' but an element of 'Forward Testing' to give you the best possible chance of trading success. You must select the trading platform which can best suit your trading philosophy. Are you going to day trade, trend follow, swing trade, momentum trade, value invest / trade, etc?

All the best.

👍

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All the info above is incorrect again.  I'm really struggling with the Price per point and pence denomination of Motif Bio, the spread being a minimum of 0.5 etc.  I'm clearly confused.  GBP vs GBX.  

So, as the price is currently around £0.087, which is around 9p per share, I've been confusing my decimal points while making calculations for profit.  If the price rises half a penny, or 0.005, It will generate £57 profit.

To achieve the same on SB over a 0.005 rise would require a Price per point value of £1160 a 1pt minimum stop loss of £1160 and a Margin of £2865.  

i think I'll leave this here and never mention it again.  Thank for the time to help me out while I figure out my own bad info :D

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14 minutes ago, nit2wynit said:

As stated earlier, with £1000 available as an example, i can purchase 11,500 Motif Bio.  If it only moves half a penny i can make £575 profit.

IG really needs a demo shares platform and I would certainly be looking for one to trial such a risky strategy. Putting your entire account on one trade doesn't have a very good long or even medium term survival probability.

Just looking at the chart below I see that price goes down as well as up and in AIM stocks when price is going down is the time when you can't sell.

1559038320_MotifBioPLC_20190508_11_32.thumb.png.65a7aa24bd0e2209618495afb70f9a1c.png

 

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@nit2wynit,

Yes it does seem you are confused and I would avoid even considering Spread Betting for now. 

I agree with @Caseynotes above about putting your entire trading capital on one trade and with that trade being a high risk trade in my personal assessment it does not have very good long term implications for your trading survival. 

Having some experience in trading AIM shares over the past many years, I also agree with @Caseynotes that the shares on AIM tend to be far more illiquid than its larger counterparts and therefore you will find many instances when you have bought in good faith but when the price is declining rapidly you cannot exit due to liquidity issues.

Trading on AIM is a different animal altogether and yes there are big winners but there are big losers too. It is report that around 90% of AIM is junk so it is about identify the 10% of quality and trading them. Have you considered day trading these 10% on RNS 'Positive Contract - Significant Revenue Increase' news? You may want to look into it and consider it but please do research beforehand and only if it meets your own personal trading criteria.  

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@Caseynotes yes it is indeed risky, but what i was hoping to show was what was needed to achieve the same gains between both account; Share dealing vs Spread Betting.  Low and Long for SB but all in for Share dealing.

Ironically Motif Bio is one of the stock I made considerable gains on in my early days of the Demo.  I noticed a News article and then managed to catch the spike.  they are currently awaiting FDA approval for a new drug.  however the side effects and possible Liver damage is what forced the drop in share price.

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@TrendFollower @Caseynotes it's clear now I've learned enough to get me into trouble fast. hahha.  This is shown by my account balance.

I've spent 2 months learning charts and platforms.  It's time for Stage 2; Actually learning how the market works and defining what it is i want to achieve.  I want to do what I see Youtube Day Traders doing.  Finding stock that is about to break out.  Buying the dip selling the rise.  My available funds are now tied up in Pinterest Shares and Sirius Minerals.

Trendfollower I don't know what RNS is so that will require research.

I want to do what Ross Cameron of Warrior Trading does; Turn $583 dollars in to $1 million in 2 years.  Should be easy :D

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@nit2wynit, it's my understanding that the probability of finding those one in a hundred stocks that just take off is  er ... about one in a hundred 🙂  You are right that learning to trade is difficult and takes time as there is a lot more to it than just platforms, dealing tickets, charting, indicators, patterns, psych, strategies, risk management ....

If you were wanting to compare SB to share dealing maybe try running matching trades on 2 demos.

https://www.share.com/investment-accounts/free-practice-account

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@Caseynotes you are correct, it may be 1 in 1 hundred but when there are thousands of global stocks and screeners to help you,  it's not difficult to narrow your watch list down to 3 or more to keep an eye on.  What i have not yet achieved, is knowing which broker to go with, that offers L2 DMA etc.  This is the gap in my learning.  You see, I didn't know what IG was or that in the UK we had Spread betting.  It's a completely different beast to what I learned about Day trading and i simply cannot make the same gains using a small account.  If i only have £1000 but bought 45 shares of Pinterest (which i did) at it's peak I was up £12 per share, so about £550 in a week.  But Pinterest for me is a Long Retirement fund stock.  It'll sit there till it fails.

With only £1000 available in SB i would not be able to achieve this bacause of the Stop Loss required and the Margin to cover.  Even at only £1 per point.


i think we can compare apples to oranges all day long, but what it comes down to is a simple question, which is:

What will make you more money in Long or Short term?  Spread Betting or Share dealing?

I'd be interested to hear all of your thoughts on it and examples if possible.

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11 minutes ago, nit2wynit said:

What will make you more money in Long or Short term?  Spread Betting or Share dealing?

It doesn't matter whether you choose long or short term or SB or share dealing, until you've learnt all the skills needed to survive in the market place your mistakes will inevitably wipe you out. 

Survival is the first goal and 80% of those who try trading don't realise that and so won't make it.

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Posted (edited)

Yes, i understand that Casey, but in the real world, assuming your knowledge education Strategy, Risk Management is all sound.....

Which one will make more money, long or short, with only £1000 :D

Edited by nit2wynit

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Once you understand the market and have learnt how to survive you can do anything but not everything so you will need to decide on personal preference and what suits your core personality (which will have been changed by the journey). What and how you are most comfortable trading will provide the more satisfying experience and so the best returns for you.

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@nit2wynit,

A professional and I repeat a professional trader would make more money using Spread Betting. They would be able to effectively use leverage to maximise gains and use the margin requirements to trade larger position sizes than their deposit. They would also have access to trading Commodites, Cryptocurrencies, FX, Bonds and Stocks. Commodities and Cryptocurrencies can offer some of the biggest gains both long and short. 

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I see.  @TrendFollower  So with the same stock but only £1000, you suggest the potential is great to Spread Bet?

I'm trying to work out the figures.

Any stock at all that is available.  £1000 to buy as many shares as possible, Spread betting maximising Margin vs stop loss to the maximum value of £1000.  I know this is far from ideal strategy for Spread Betting, I'm just trying to figure out the euation principles of movement up or down.  It's obvious that owning shares limits your losses.  I can buy £100 and leave them forever, unless they actually Fail completely, but i can't do this with SB as eventually I should be stopped out at a greater loss than £100.


So, theoretically, (or even literally if I can find a stock as an example) I buy 100 shares that cost £1000.  £100 per share.  They go up to £200 per share.  I've doubled my money.

What would be required, or what would i need to do with SB and the same account value of £1000 only to make, or lose more money?

How would I best utilise the £1000?

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I'm still missing something in what I've learned over the past month or 2.

These guys that are dealing Shares.  I'm not actually sure if they literally buy and sell shares, or are speculating.  Some of them talk of Shorting, but you can't short your own shares, so they must be speculating.  While others must only be literally Buying Stock and Selling it at a profit.

i think I've got too many sources of info and they're conflicting with one another.

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Warren Buffett doesn't use leverage and I think there are a few professional leveraged traders who don't make as much money as him, and as I suggested before, no one tries to trade everything. 

So yes @nit2wynit, it is a big space which is why you need to discover what and how you are most comfortable trading.

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Right, to end my question I've worked out the equation with something i know the value of.  Pinterest.

If I bought £1000 worth of Pinterest @ $28.71 I would get 44 shares.  If they doubled to $58 per share (theoretically) obviously my £1000 would become £2000 or slightly more.

With Spread Betting and only £1000, I could only go £1 per point.  Stop loss would be around 200 points or £200 and the Margin around £700.  Therefore the Stop loss and Margin equates to the total £1000 in the account.

The potential return however if the stock then rose to $58 is around £2750!  And it's tax Free.

So there it is.  I can make more Spread Betting.  However, this of course only allows for a limited stop loss and a potential loss of the entire account failing Risk Management.

Point being, if I apply all rules learned to Share Dealing, then a breakout can still occur in Spread betting too and then greater profit and or Loss.  Pinterest came down 1000pts from 36 to 26  so the potential is to lose the entire £1000 Spread Betting.

 

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In hindsight and upon reflection, it's still safer to buy the stock, don't you all think?

If I only have £1000 and my entire account is now tied to the trade (not to mention, i'm already starting negative with SB because of the spread) then i can't do anything till it moves up.  So both scenarios lock away my Capital.

OK, so I make 2750 using SB, and about £2200 on the shares, but the fear and potential to lose it all if it drops more than 200 points is scary, especially considering it dropped 1000pts last week.   If the shares dip, they can literally go down to 10p, but always they can go back up.

I've still a lot of research to do it seems.

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@nit2wynit,

I agree with something @Caseynotes posted earlier which is to try it on a demo account.

Also if you are not going to have a stop loss on the shares then try not having a stop loss on the demo account. Also you can short on the demo spread betting account which you cannot on the shares account. 

I just checked and on Pininterst if you bet £1.00 a point then the margin required is £730.75. It is up 57 points at the time of writing and therefore there was the potential of £57.00 profit for today. The question is whether you would have made more had you physically held shares with the same movement in one day. 

I think you should use the demo spread betting account and test some trades and different strategies and really understand the advantages and disadvantages to spread betting. 

At least you seem to be thinking about it seriously and putting the time and effort in so well done for that.

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I agree @TrendFollower, reading some of the posts I wasn't sure if a trailing stop was going to be used for SB to lock in profits and prevent a total loss of any gains or indeed too much loss of capital.

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@Caseynotes,

I know it is difficult to compare like for like when dealing with two different beasts in share accounts and spread betting. However if you are not going to have a stop loss on the shares account and merely buy and hold then this needs to be replicated on the spread betting when conducting any 'compare and contrast' exercise. Otherwise it is not a fair fight!

In reality you would set a trailing stop on a spread betting position to ensure you exit with a profit and not a loss. Equally you would set a stop loss when going long and buying shares via a share broking account. 

I think there is a lot of bad publicity around Spread Betting and at times rightly so. It is also down to the amount of traders / gamblers losing lots of money. Spread Betting can be a very useful mechanism to enhance profits but there has to be a coherent trading strategy behind it which is both robust and effective. This is where a lot of traders fail. They simply do not put the time and effort in to learn their trade and just want to copy and emulate these 'pop ups' online who sell them this easy method of trading to make profits which simply does not exist. If trading was easy then lots of people would be trading and making lots of money consistently. 

Trading is easy. Trading profitably on a consistent basis is extremely difficult. 

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That's all very true @TrendFollower,  one of the biggest traps at the moment are the fake signal service sellers on instagram. Very tempting to walk into that once you realise how hard trading is and how long it takes to learn, to just look for someone to tell you which trades to take for a fee. By the time you've lost all your money they have run off and started up again with a new name. I saw one that was tracked down who had re-started 5 times in the space of a year taking 10s of thousands each time, and it's not actually against the law.

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@Caseynotes,

I agree totally. 

There are a lot of traders that do not have 'Trading Principles' or a 'Trading Philosophy'

So for example I follow 'Trend Following' principles albeit tweaked to suit my personality. I follow 'Price Action' and make trading decisions based on trends and price action. This is my trading philosophy. I accept this is a simplified explanation and I could go into moire intricate detail but that is for another time and another thread. 

There are far too many traders on the IG Community where it is difficult to ascertain what their trading principles are and what their trading philosophy is. This means they are trading 'willy nilly' and hoping to catch a trend or hoping to make short term gains based on what they have read or been told, etc. 

There is very little evidence of a trading system being used. For example a trading system does not have to be complicated. I see very little talk about signals and indicators apart from the usual suspects on the IG Community. A trading system can be as simple as we want it to be. A lot of people think that a trading system must be complex. It does not have to be. It all depends on the type of trading strategies you are going to adopt to help execute your trading plan which will contain your trading goals. 

The discussion on whether to use a Spread Betting account, CFD account or even a Share broking account comes later but first you must have a clear and defined plan. You must know which strategy you are going to adopt to meet that plan. Only then can you develop a trading system and it is this trading system that will lead you to choosing either a CFD account, Spread Betting account, Shares account, Futures account or a combination of all or some of them depending on the different assets you choose to trade. 

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4 hours ago, nit2wynit said:

Right, to end my question I've worked out the equation with something i know the value of.  Pinterest.

If I bought £1000 worth of Pinterest @ $28.71 I would get 44 shares.  If they doubled to $58 per share (theoretically) obviously my £1000 would become £2000 or slightly more.

With Spread Betting and only £1000, I could only go £1 per point.  Stop loss would be around 200 points or £200 and the Margin around £700.  Therefore the Stop loss and Margin equates to the total £1000 in the account.

The potential return however if the stock then rose to $58 is around £2750!  And it's tax Free.

So there it is.  I can make more Spread Betting.  However, this of course only allows for a limited stop loss and a potential loss of the entire account failing Risk Management.

Point being, if I apply all rules learned to Share Dealing, then a breakout can still occur in Spread betting too and then greater profit and or Loss.  Pinterest came down 1000pts from 36 to 26  so the potential is to lose the entire £1000 Spread Betting.

 

@nit2wynit

I am sorry but your numbers are way off. £1.00/point = 100 shares. vs 44 shares. (Because you gain £1.00/£0.01 you would need 100 shares to receive the same £1.00 Profit, hence £1.00/Share = 100 Shares)

44x $28.71 = $1263.24 Profit if they double in price, note Dollars.

100x £28.71 = £2871 Profit if they double in price, note Pounds. This is because you gain £1.00 / $0.01 it adds leverage to the exchange.

Also, take a look at KnockOuts this way your Stop Loss = Margin 

Finally, if you only have £1000 in your account you need to be sure you have mastered your strategy so you may be well advised to use your demo account. I know that's hard because I have done the same in the past.

I wish you the very best of luck.

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@Foxy Hi bud, yeah my numbers are well off aren't they, but the starting figure of £1000 is the same.

I've been using the Demo for 2 months and went life for 2 weeks where I lost £400 on a £1400 account.  I've posted my wins using the demo, but didn't adjust for the smaller account so lost about 70/30.  I left with £1000; £400 down, to buy Pinterest shares @ $24.  The shares price rose from  $24 to 436 where my profit on 45 shares was approx $650.

Apologies for mixing up my Dollars and Pounds inthe euation, but the principle and answer to my question remains the same.

With a £1000 account, using the same stock, which method 9SB vs Share Dealing) would create the most profit?)  All other things equal.

I don't actually follow what you've posted above I'm afraid.  the deciding factor is the £1000 limit.  This buys what i have stated above.  44 shares of Pint @ $28.71.  The best i could do using SB and £1000 on Pint was £1 per point again with the figures above.  A Margin of £730 roughly and a Stop Loss of £200, or 200 pts.

My point has always been to find out. what makes the most money, all other things equal.  My findings show that SB creates the most profit, but carries the most risk.  Unless I've really mis-understood it, which at this stage, is likely. lol.

Thanks for adding to my knowledge base :D

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31 minutes ago, Foxy said:

@nit2wynit

I am sorry but your numbers are way off. £1.00/point = 100 shares. vs 44 shares. (Because you gain £1.00/£0.01 you would need 100 shares to receive the same £1.00 Profit, hence £1.00/Share = 100 Shares)

44x $28.71 = $1263.24 Profit if they double in price, note Dollars.

100x £28.71 = £2871 Profit if they double in price, note Pounds. This is because you gain £1.00 / $0.01 it adds leverage to the exchange.

Also, take a look at KnockOuts this way your Stop Loss = Margin 

Finally, if you only have £1000 in your account you need to be sure you have mastered your strategy so you may be well advised to use your demo account. I know that's hard because I have done the same in the past.

I wish you the very best of luck.

@nit2wynit

Thanks for your reply,

may I ask you to spend a little more time on the detail of my post, consider £1.00/point = 100 shares which are more than twice your 44 shares.

Also using KnockOuts will reduce your margin from £730 to £200. The only difference spread betting with KnockOuts is the stop level you set at the opening is a guaranteed stop and can't be extended but you can stop out early if you want. I think IG has developed this product to help get around the new high margin requirements and it also has the added benefit of a fixed maximum stop loss. 

You said, "you don't actually follow what I've posted" So please read it again and again until you do, I am sure it will help you understand a good bit more.  

 again, I wish you the very best of good fortune.

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@Foxy buddy, i don't know what you're talking about :O

Knockouts?  £1.00=100 shares??

I work backwards from ......'I have £1000.  How do I make this work for me in the short term?'

Maybe you will understand me more if you read every single post of mine.

My scenario is simple.  I just need to know the best way forward with £1000 that could potentially provide a weekly income; assuming all strategies, knowledge, Risk Managements.

Tell me Foxy, with £1000, what will make me the quickest income if all other boxes are ticked; i.e knowledge, Risk etc.

Thanks.

I can't read your post again, if i don't understand what you're talking about.!  I've admitted my numbers were off, but mostly due to a mix up with Dollars and Pounds.  i bought in Pounds.  Pinterest is in Dollars.  As far as i can see this is the only confusion.

Thanks gain.

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Guest cfd traders lose > 80%

Caseynotes' post on page one says it all, though somewhat miildly. You are going to lose unless you are smarter than the bucketshop.

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