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Financial betting

Financial betting guide Anna CoullingHello and welcome to another of my trading and investing sites, and this time we are going to look in detail at the financial betting industry, which in the last few years has changed beyond all recognition, now offering a plethora of different products and services, providing some unique and creative ways to bet on the financial markets as a result. All this is far removed from the mid 1970’s when the industry was first established by Stuart Wheeler, who saw the opportunity to offer a simple market for betting on the latest price of gold, and as a result the spread betting industry was born. Since then of course, this financial betting technique has revolutionised the way in which small retail traders have access to the markets, which until then had been inaccessible. Indeed this was the reason that IG index ( Index Gold ) was founded, as it allowed small traders and speculators the opportunity to bet on the spot gold price, which previously had been the sole preserve of the futures and options traders. In the last thirty years the spread betting industry has expanded dramatically, both in the in the number of companies now offering the option to spread bet, but all in the diverse products and markets now available. Whilst this market has matured, new ones are now being opened, with variations based on the concept of betting on a financial market, and these now include $inary betting $inary optionsxed odds financial betting, financial betting exchanges and of course spread betting itself. Indeed many of these financial betting techniques now overlap in what is becoming an increasingly crowded market, which can be confusing for the novice trader or speculator, and in many cases the larger spread betting companies are now beginning to offer these techniques alongside their more traditional spread betting platforms. All of these financial betting systems have advantages and disadvantages and I propose to look at all of these in detail, so that you can make an informed decision as to which is the best trading system for you.

Now before I start, many of you who follow me regularly on Twitter or on my various financial blogs will know, that I am a full time trader, where I specialise in the commodities and forex markets. I have been involved in trading and investing for over 15 years, and have learnt the hard way, making all the mistakes ( and many more ) along the way, but survived to tell the tale! I started my trading career in FTSE futures at £10 per point, a hard way to learn, but good training! This was in the days when there were no online trading accounts, and all trades were placed by telephone via the broker who relayed the order to the floor of the futures exchange. By the time the order was confirmed the original price on the screen could have moved several points, and with tight stops of only 5 or 6 points, losing trades were commonplace, almost as soon as the order had been confirmed! However it was a great place to learn, and the one thing it taught me was good money and risk management, as well as teaching me that this is not the place to start as a new trader. For those of you who came across him, I was an Albert Labos student back in the mid 1990’s, and whilst many would consider him a rogue ( at best ) he did have an interesting view of the markets which have stood me in good stead ever since. As a result I now have the luxury of trading for a living, as well as writing extensively about the markets I trade, and I hope you find my regular forecasts and market analysis helpful, and I look forward to welcoming you as one of my readers, either on Twitter or on my financial blogs which you can find listed alongside. So let me start by giving you a quick overview of the markets which I propose to look at in detail over the next few pages.

Financial Spread Betting

As I mentioned above the financial spread betting industry has been around for over thirty years, and from the first index for spot gold, has now diversified into the huge market we know today. Many companies have come and gone, whilst others have gone from strength to strength, either by organic growth or by acquisition. Many of the larger forex brokers are now diversifying into the spread betting market, but many of these companies have a limited product range at present. One such newcomer is FXCM which has recently acquired ODL Securities in London as they look to build their financial spread betting portfolio. The spread betting industry is now starting to shed its rather shabby past, partly due to tighter regulation by the FSA and partly in an attempt to improve the industries image, with all the companies now offering a plethora of spread betting courses, books, spread betting seminars and training tools. In addition all the spread betting platforms now include sophisticated suites of tools for market analysis and news, with many spread betting companies now providing streaming Reuters news as standard. Markets covered include indices, commodities, forex, stocks, shares, futures and options with some offering sector indices and unusual indices such as the VIX and USD index. Increasingly, as we will see shortly, many of the spread betting companies are now offering binary betting and binary options alongside their more traditional trading platforms, further blurring the edges in the financial betting world!

Binary Betting

Binary betting trading is the new kid on the block of the financial betting world and is now starting to take market share from the more traditional forms of financial betting such as spread betting. Binary betting is a relatively new concept with its roots firmly established in the sporting world of fixed odds. The key difference between binary betting and spread betting is that binary bets have a limited risk and profit profile, whereas spread betting risks and profits are unlimited. The crossover between binary betting and spread betting is further confused by the use of terms such as binary spread trading, which implies some commonality between the two trading systems. This is a long way from the truth as we will see as we look at the trading opportunities offered by this unique online betting system.

Fixed Odds Trading

Fixed odds trading really describes this method precisely, and in many ways is similar to binary betting, offering traders a limited risk, limited profit profile, and with trading generally limited to shorter term timescales. As with binary betting the types of trades available are very different providing the opportunity to make money in all market conditions, both long and short, but also where financial markets are consolidating sideways. As with binary betting, the roots of the trading system are based in the fixed odds world of the sporting industry, and have been adapted to suit the financial markets and novice traders in particular.

Financial Betting Exchanges

The newest entrant to the financial betting world is that of the betting exchanges, which revolutionised the betting industry when they were first launched almost a decade ago. Since then, companies such as Betfair, have tried to diversify away from their core business in the sporting world, and attempted to break into the financial markets with various product offerings based on the original betting exchange concept, but sliding sideways into the spread betting arena. This overlap and blurring at the edges of all these financial betting methods will no doubt continue, with technologies merging and companies offering all four betting systems to their clients.

So given the above confusion and overlap in the financial betting market, let me try to explain how each system works, the advantages and disadvantages of each, some trading strategies, and which is the most appropriate for you and the markets you trade.