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Spread betting financial markets

When the spread betting market was first launched in 1974 by Stuart Wheeler, there was only one market available to spread bet and that was gold. Since then the range of markets and instruments has expanded enormously, providing access to trading opportunities once considered the preserve of the professional city trader. So let’s take a look at those available, and to round of this section of the site I will explain some simple spread betting strategies that I use in my own trading.

Spread betting indices

One of the most popular and liquid markets for spread betting. All the major indices are quoted and with most spread betting companies now offering 24 hour trading, you can follow the open and closing positions as each market closes and another opens. Some new traders find it odd that these indices are quoted, even when the underlying cash markets are closed, but the point to note is that the quotes provided by the spread betting firms are based on the underlying futures markets, rather than the cash markets, with most ( such as the FTSE 100 which is one of the most liquid contracts ) trading from 7am until 9.30 pm each day. With indices generally correlating positively with one another this gives us the opportunity to design our hedging strategies using two separate indices, which I will cover shortly. The reason that the futures market is used to provide the spread, rather than the cash, is that the futures market is updated every second, whereas the cash market is only update every 15 seconds for the UK – far to slow for the betting firms to refresh their quotes. As well as the major exchanges, many firms are now starting to add other index based products, such as market sectors for equities trading, the VIX index for stocks, and the USD index for currency traders, all of which provides us as traders with opportunities to create and develop our hedging strategies. Minimum bets for the indices are normally around £1 per index point, although one company is currently quoting 50p per point.

Spread betting forex

Again, a very popular market for spread betting with all the major pairs offered along with many of the cross currency pairs. With several of the major forex brokers now looking to diversify into spread betting, this market is set to become considerably more competitive in the short term with spreads tightening as a result. One thing to watch for here is companies which offer direct market access. One such company is Prospreads who offer a trading platform designed for the professional spread betting client, with DMA ( direct market access). In effect this means that the company references all its prices from the underlying markets where thousands of market players are competing to trade, allowing Prospreads to offer ultra tight spreads, with extremely fast execution and no re-quotes. Once again, correlation in the forex pairs provides us with excellent opportunities to hedge our risk using a pairs trading strategy.

Spread betting commodities

Gold futures, are now one of the many commodity markets increasingly being offered on the major spread betting platforms, with metals and the energy complex increasingly being added to the product portfolios of many firms. More recently some are now diversifying into the soft commodities such as coffee, cocoa, wheat, cotton and sugar, all of which are underpinned by the futures markets around the world. Again, all the markets provide excellent hedging opportunities and one simple strategy that I will explain shortly is to use the WTI and Brent crude oil contracts to construct simple hedging strategies.

Spread betting stocks and shares

Spread betting provides a wonderful opportunity for retail traders and investors allowing them to hedge their exposure in the cash equity markets, by using spread bets to protect against longer term movements which may adversely affect a  portfolio of stocks or shares, something that was difficult or impossible until the advent of the spread betting market. In addition of course, spread betting on individual stocks is equally popular, and once again, with the number of shares now being quoted we have the opportunity to set up both simple and complex hedge strategies.

So having looked at the markets, now let’s look at some simple spread betting strategies that I use almost every day!