Sabtu, 19 Juli 2008

Diary of a Spread Better: Thoughts And Experiences

by Steven Davies

I'm no millionaire trader, so the pro's may want to look elsewhere for their tips, but maybe some of my mistakes and experiences may help one or two people out there out there, and it would be good to share thoughts via the comments.

I've enjoyed a punt on and off for a few years now, sometime successfully, and sometime disastrously. I think that I have learnt from many of my mistakes, and hope one day to become consistently profitable.

I remember when my naive eyes first discovered spread betting; it appeared to me to offer an easy way of making money. It only required a small stake, which could be placed with a stop-loss, and offered unlimited profits if the bet went the right way. How could you lose?

I was quite wrong - Unfortunately it does take some work, and a little luck can be good thing too!

The spread better needs to know exactly what they are up against, of which there are 3.

The perfect market The spread betting company Everyone else

The first thing we need to understand is the perfect market theorem.

The perfect market theorem suggests that at any one time, the price of a share, commodity etc reflect all that is known about it at that time, by all participants in the market. It reflects not only its current worth, but also the participants' future expectations.

In a perfect market, it is not possible to predict the future movements, as only an unknown factor can change the price. It could equally be up or down.

The perfect market theorem is often seen in action before a company releases a profit warning. If the profit warning was widely expected due to market conditions, the price will already have dropped prior to the warning - In line with it's expected worth after the expected news.

If you believe the perfect market theorem, it's probably best to give up on spread betting now, as you accept the mathematical probability that you will win 50% of your bets, lose 50%, and also lose the providers spread each and every time. This would not be a good way to make money.

If however, you believe the market acts irrationally at times (and I don't think we need to look much further than the dot.com bubble or our current housing market for proof of that), and you can spot that mispricing, then spread betting may be for you...

Next up is the spread betting provider. Don't get me wrong, they're not your enemy, but they do need to make money. As a novice, you'll probably swear blind they've ripped you off from time to time - such as when a trade cannot be executed in a timely manner, or when the platform craps out on you, or a trade mysteriously 'slips' a few points. In my experience, spread betting is not well suited for scalping (opening and closing positions in a very short space of time, to make quick profits on a small movement) due to these sometime questionable slips. More of that later.

Finally, it's also worth remembering when spread betting that for ever winner, there is a loser. For every bet you win, someone, somewhere has lost. So you need to be smarter than the other guy.

To sum up...IF:

- You don't believe the perfect market theorem - You can live with a little frustration from time to time - You are better at predicting than 50% of other traders.

Spread betting is for you...

About the Author

Experienced spread betters looking to share useful spread betting information, guides, promotions and other useful hints and tips.

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