The financial markets offer different avenues for investors to profit, and spread betting is one of them. You can apply spread betting to a variety of financial instruments, such as stocks, indices, forex, and even cryptocurrencies.
Spread Betting Strategies
Spread betting does not involve owning any assets per se; rather, players make predictions on the future price of an asset for profit. In spread betting, two prices are quoted: the bid price (the price at which you can sell) and the ask price (the price at which you can buy). The difference between these two prices is known as the spread. Unlike most traditional securities trades, the broker profits from this spread, allowing spread bets to be made without the need for commissions.
If investors believe the market will rise, they enter at the asked price. In contrast, if they expect the market to fall, they enter at the bid price. Spread betting involves the use of leverage, which allows you to magnify their profits; while it is not legal in several countries, it’s completely legal in the UK.
Getting started with spread betting involves two major aspects: technical analysis and market trading strategies. Technical analysis simply involves using an asset’s historical data to understand its price movement. The evaluations technical analysis offers, which mostly give a sense of the current market conditions, determine the spread betting strategies to use.
Here are the best spread betting strategies for the following most common market conditions:
Stable Markets
Stable markets are usually marked by stability in asset prices. Market volatility is low, so prices do not fluctuate rapidly or sharply. Even though the market is stable, an asset can take a bullish or bearish trend. In such a scenario, a ranging spread betting strategy would be ideal.
Identify the support and resistance zones when using the range trading strategy. Ensure the price has hit the support or resistance zone at least twice — these points represent the range and will be the opening trades’ entry and exit points. Range trading is best if the chart shows a sideways price movement within a range, and when the range is established, you can open long trades at the support levels and short trades at the resistance levels.
Trending Markets
In trending markets, the price of an asset can trend upward or downward. If the price trends upwards, it forms higher lows and hits higher highs. Prices will continue to go up while new support levels are formed. On the other hand, in a downtrend market, prices form lower lows and lower highs, as the price will keep going down even if it rebounds slightly occasionally.
A trend-following strategy works best for trending markets. Use indicators like moving averages (MA) or the moving average convergence divergence (MACD) to identify or confirm the trend in the market. As a trader, you can add MAs to their charts in the trading terminals. Once on, the MA gives information about market trends; if the price is above the MA line, the market is in an uptrend, signifying a long spread bet opportunity and vice versa.
The moving average convergence divergence helps to confirm a trend. If the MACD line crosses its 9-day EMA line, it confirms a bullish signal and a long spread bet opportunity. Conversely, if the MACD line moves below its 9-day EMA line, it confirms a bearish signal and a short spread bet opportunity.
Volatile Markets
Volatile markets are usually fast, and prices fluctuate rapidly or sharply. They are sometimes driven by news. You can employ a news spread betting strategy. This strategy works best for assets that are sensitive to news, like bonds and stock indices. News traders can monitor updates on central banks’ interest rates and determine the likely impact of the news on the market before placing a bet on how the price will react.
The breakout trading system is another spread betting strategy that works for volatile markets. Breakouts occur when the market force is strong enough to break through solid support and resistance zones. News can be a major catalyst for breakouts. The idea behind the breakout spread betting strategy is that once the support and resistance points are breached, the price will continue moving in that direction until a new consolidating point is reached. Using the strategy, spread betters will attempt to find a likely breakout before it happens and open a position while anticipating the move.
Consolidating Markets
Consolidating market conditions usually appear after an uptrend has peaked or a downtrend has bottomed out. At the consolidation phase, there’s less likelihood that a trend will begin, although that cannot be totally ruled out. The spread betting strategy for consolidating markets is to scalp for quick gains.
Scalping focuses on making profits from small price movements. When a market is consolidating, prices will not rise or fall to great lengths, so scalping a small increase or decrease can prove to be a smarter trading strategy. Using the scalping strategy, open spread bets on highly liquid assets like EUR/USD or GBP/USD. Highly liquid assets give substantial volatility to leverage for trading in short time frames.
The best charts to catch scalping opportunities are the 1-minute to 5-minute timeframes. Scalping follows normal trading rules, but the caveat is that traders have to open multiple trades in a row while sticking to the best risk management principles.
Spread Betting Tips
Here are five tips to maximise spread betting effectively for profit:
- Avoid trading too many markets and stick to a specific market or set of markets you’re well versed in.
- Use 1% to 3% of your total account per spread bet to reduce potential losses and lock in profits.
- Practice with a demo account to build your trading confidence before placing bets on your real account.
- Keep a trading journal to document adjustments to your trading strategy.
- Avoid relying only on technical analysis and stay updated with the news.
Key Takeaways on Spread Betting
Spread betting may not involve owning an asset directly but still incorporates the same exposure as the underlying asset. Because of the leverage available, spread bettors make more than their counterpart spot traders using the same trading capital. Using leverage can be a double-edged sword, but knowing which spread betting strategy works for which market conditions will help you manage unfavourable markets while trading to earn more profit.
