Posts Tagged ‘spread betting’

It’s a human trait: if we’re convinced we can spend less time doing something but still achieve the same end product then we’ll generally do it. And we do this even if sometimes the consequences can be dire.

It’s the same with trying to make money on the financial markets, if someone tells us there is a short-cut to success then most of us will take it, after all, we’re all a lot smarter than average and therefore why shouldn’t we be able to make the same amount of money as those guys?.
Certainly there are lots of books out there that talk about how best to make money on the financial markets. There are also websites with free expert financial market analysis.

Whether it’s a new course promoting another new method or some new software that will almost automatically make you richer.

Learn, Learn and then Learn some more

There’s no real short-cut to acquiring the kind of knowledge you’ll need to make a successful trader, that said, it’s relatively easy to get up to speed as to what you should be looking out for. Many factors influence the financial markets. Politics affects the financial markets, whether it’s a major global political event or just a generalised feeling or sentiment surrounding the strength or weakness of a country’s leadership and direction.

Don’t worry you don’t have to go back to University to study political theory just make sure you have a higher-than-average understanding of what’s going on in global – and local ¬– politics. The global and local economic situation will have a bearing on the financial markets too. Trade balance, GDP, unemployment etc. Know your power bases in the global economy.

Country’s are required to release economic statistics, called economic indicators throughout the economic calendar. Make sure you know the dates of all the major releases and that you monitor economic analysts predictions and media reaction and gauge how the markets react. While you will find many free resources on the web, it’s worth subscribing to the key economic, political and financial newspapers and publications in your respective country.

Initially it’s probably best to choose one market and learn as much as possible about it, here are three of the most popular markets:.

Forex

The foreign exchange (forex) market is the largest financial market in the world. {Its prominence perhaps lies in its broad appeal and the number and diversity of participants it attracts; from the world’s heavyweight commercial banks, hedge fund managers, right down to the individual. The forex market is appealing because of its liquidity and the sheer amount of money that is regularly traded}. Choose a currency pair which is, historically, less volatile than others and learn everything you can about the relationship between these two currencies and indeed countries.

Shares

A number of factors can affect the price of a company’s shares. Chief among them is both the actual performance of the company in question and the underlying economic climate.
Public companies have to release financial results at least twice a year. The figures give investors insight into how well the company has performed and its future growth potential.

It’s also key to gauge any media reaction the media reaction and whether they were more or less what economic analysts were expecting. It’s probably a good idea to start with a company you are familiar with, and, if you are going to trade straight away one that’s share price is relatively stable.

Commodities

There are common factors that influence all commodities. There is a lot of information about trading commodities available on the web.
But it is the extent to which these factors influence an individual commodity that investors and analysts pay special attention to.
For instance, the price of Gold and the US dollar are very closely linked, as many investors use the relative stability of the former to hedge against a weakness in the price of the latter.
Whereas, the price of copper is more susceptible to changes in the cycle of supply and demand in business.
It’s a good idea to start with a commodity that’s price is stable.
To summarise then
To start with it’s probably best to choose a financial market you are familiar with and a product within that market that is stable.

Never underestimate the importance of risk management.

Successful CFD traders make risk management an integral part of their trading strategy. This is one of the reasons why they are successful long-term.
Finally, it’s always a good idea to try virtual trading first, find a company that will allow you to trade on their platform for free.

IG Markets allow you trade CFDs on the world’s financial markets. They offer a free demo of their trading platform and free education and resources to help you become a better trader.

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A CFD (Contract for Difference) is an arrangement between two investors to trade on the difference between the start price and finish price of a contract at the end of an agreed timescale without either party needing to buy the shares themselves. While it may sound slightly complicated it really is not at all. Institutions and hedge funds have utilised CFD Trading for more than ten years in the UK stock market as an alternative means of investment to traditional stock market trading. CFD trading is similar in many ways to spread betting in that both are margined products so you can gear yourself up or take a position that is a multiple of your available funds.

So think about it from the point of a margin on a firm youre interested in, if it was 10% establishing a position of £100,000 would really only require a deposit of £10,000. Any running profits you make can be used as margin to establish new positions but any running losses would have to be made good by reducing your position or providing additional funds.

While stamp duty of 0.5% on all UK share purchases has in the opinion of some traders reduced the cost effectiveness of ‘day-trading’ traditional stocks and shares, both CFDs and spread betting are exempt and this has actually added to their appeal. CFDs are quite liable to capital gains tax whereas spread bets are tax free, but losses incurred from spread bets are gone for good while CFD losses can be offset against future profits for tax purposes. When you actually trade in CFDs you purchase those contracts in nearly the same way you buy shares. Let’s say you wished to invest on a thousand shares in a business – with CFD trading you would need to sell 1,000 units at eg 494p per share, whereas with spread betting you would just place a bet of £10 per point to get an equivalent return.

The other difference between the two instruments lies in the flexibility in the bid-offer spread. With CFD you are the cost maker, which is why hedge funds tend to use CFDs rather than spread betting. With CFD you are the price maker, which is why hedge funds tend to use CFDs rather than spread betting. With CFDs the charges and commissions involved in a trade are not part of the spread, which is the case with financial spread betting. Because of this, the CFD spread quote will constantly be very close to the underlying price of the share or commodity that you are following. CFDs also mimic nearly every aspect of owning the underlying share or market, so if you hold a position for a long enough time period you will recieve the benefit from any dividends being paid on the shares.

Ultimately there is no hard and fast rule as to whether CFDs or Spread Bets are ‘better’ – you just need to understand the differences as each will be suited to different investing styles. Although they should not be regarded as substitutes for long term investment or saving, as more people seek to take control of their financial destiny, theres been a growing realisation that going short is a legitimate means of trading in market thats become increasingly difficult to profit from in a traditional sense.

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In the past century many have made their fortune and generated great wealth as the late great billionaire J. Paul Getty did from black gold.

The ever increasing demands on oil supply to power today’s energy needing consumer, continues to grow globally for oil as the energy source of choice for cars, heating, machinery etc. Countries experiencing significant growth cycles such as Russia, Brazil, India and China continue with their increased consumption to fuel their growth ambitions, placing even more demand on the finite oil resources the world has.

Whilst significant oil resources still remain untapped in areas such as Canada / Alaska, extraction of the oil in these areas is only economically viable at the much higher oil prices seen in recent years.

The impact in 2008 for the retail consumer was very well covered by the world media and felt hard by us all globally as the price of oil soared from $85.42 as of Janurary 22nd 2008 to $147.27 in July 11th 2008, at that time many industry experts thought oil would continue the established trend and trade at $200 a barrel. The credit crunch and resulting cycle of wealth destruction globally during the second half of 2008 impacted demand for black gold with the price per barrel falling to $32.40 on 19th December 2008. It has been a roller coaster ride for crude oil in 2008.But it’s an opportunity for those in the know – the speculative investor – to make significant gains from trading, or on the other hand of course to have made significant losses.

While the media attention has been driven away in recent months to focus in on the demise of the banking sector, Oil has actually been making a spectacular recovery from the $32 December lows to hit $70 in recent weeks, the industry experts are now calling for $85 dollars a barrel whilst others suggest a short term correction may be in order. Whatever the future holds the oil trader and speculator has the opportunity to profit from such moves if their opinion on the direction proves to be correct.

For the retail investor gaining exposure to either NYMEX Crude or BRENT Crude at first may not seem that straight forward, whilst the opportunity to trade Oil Company stocks or purchase Exchange Traded Funds (ETFs) (which can provide exposure to oil prices) has traditionally been the only obvious route through your online stockbroker, Financial spread trading and Contracts for Difference (CFD) trading makes accessing these commodity markets relatively straightforward. Investors can then take either long or short positions via the spread bet or CFD and trade the fluctuations in price in this and many other different markets. Spread Betting firms and Contracts For Difference providers also provide a wide range of market information, charting resources and trading technology which gives the retail investor access to a wide range of information. Some even provide real time market information for the relevant trading data like the weekly Crude Oil Inventories Update.

Only once a week, the Energy Information Administration (EIA) gives a small insight into what the future demand for oil is likely to be by releasing its Crude Oil Inventory numbers. Traders will look for this sort of information because the amount of oil commercial firms have in inventory impacts the price of oil in quite a predictable way when taken into account with other factors in determining future oil prices.

The Crude Oil Inventories numbver reports the number of barrals of oil that commerical firms have in inventory. Commercial firms will report their inventory levels to the EIA on a weekly basis, however the EIA must still have to take some estimates to arrive at the final number they get.

Another big organisation that has a impact on the price of oil is known as OPEC – the Organisation for Petroleum Exporting Countries.The OPEC is made up by this cartel of countries, Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. The cartel is headquartered in Vienna and hosts regular meetings among the oil ministers of its Member Countries.

According to its statutes, one of the major goals is the determination of the best means for safeguarding the cartel’s interests both individually and collectively. It also pursues ways and means of ensuring the stabilisation of prices in international oil markets, with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.
Something that is keenly awaited by oil traders every month is the OPEC Monthly Oil Report as well as few other bulletins.

Whilst trading oil may seem the preserve of an elite group of traders in London, Chicago or elsewhere in the globe, the price of petrol or gasoline directly impacts everyone in the developed world. It impacts the cost of transporting goods and services to every area of the globe and as we saw in 2008, this can have a negative impact both on the price we pay for personal transportation at the pump, but also the cost of basic food and services we rely on in our day to day lives. While we sat back and saw very little pull back in pump prices during the past 6 months these same experts predict a return to higher pump prices in the not too distant future which could impact us all.

Some have therefore turned to spread betting and CFDs to hedge their exposure to rising fuel costs by placing medium to longer term trades which pay out if oil prices rise across the globe. This approach is also known to be relevant for small and medium sized businesses who are exposed to oil price moves-rom hauliers, farmers and fisherman to virtually any business impacted by rising fuel costs. Giant companies have done this for many years,airlines hedging fuel costs to ensure any unexpected sharp rises in crude do not impact their budgetary plans in any fiscal year. In 2008 many haulier firms folded due to the rising cost of fuel but also due to fuel taxes in the UK remaining high – approximately 61% of the cost paid at the pump is tax revenue for the UK government, European haulier firms subject to lower fuel taxation were able to generate a significant competitive advantage against the UK haulage business at this time who were left unable to pass the full cost of rising fuel onto their customers.

Beyond hedging, spread betting and CFDs also allow investors the opportunity to trade on oil companies’ stock prices – from the Exxons, Shells and BPs of this world to the smaller exploration outfits, drilling as Getty did over half a century ago for that next 20,000-barrels-a-day oilfield and the opportunity to make serious money.

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