Trading

This weeks blog we’ll be looking at something many of you have heard of, but perhaps not many have tried.

So what is trading? Put simply, it’s a case of buying low and selling high. Much like buying some duty free cigarettes for £2 a pack and selling them for £4. Although a better comparison for spread betting would be the stock market.

Let’s take a look at an example of trading in this manner.  For arguments sake, lets say that shares in BP are currently worth £2. You decide that that is quite cheap and that they should probably rise in the near future (this is the fundamental aspect of trading. Predicting the way the value will go!)

You decide to buy £100 worth of shares (50 shares)

After some excellent PR work (haha!) by BP, the price of their shares rises to £4.

Now heres where it gets tough. Do you think they will continue to rise, or is that as far as they will go and will they start to come back down. This is actually the most crucial point of the trade. A very interesting difference arises between winners and losers right here.

Winners:             Let their winning trades keep going, riding the rising price as far as they can.

Close out their losing trades as soon as they’ve realised its going the wrong way

Losers:                 Close out their winning trades too soon to take a tiny bit of profit

Let their losing trades keep going in the belief they’ll “turn around”

“Close out? What’s that” I hear you cry. Well it’s really simple. When you close out, you simply sell your position back to the market at the current price. Using the BP example, you will be selling your 50 shares back at £4 a share giving you a tidy profit of £100. (50 x £4 = £200. £100 more than you started with!)

Seems really easy right? That’s because it is! The hard part is working out which way the market will go.

Let’s use a sporting example.

At the beginning of the season Blackpool were considered by many to be absolutely smashed in to next Thursday by practically everyone. I mean they signed Luke Varney who was free transferred by relegated Sheffield Wednesday for goodness sakes!

The spread firms have a market called “Season Points”

Self explanatory really. The spread firms guess at how many points the team will accrue in the season.

Blackpool were quoted at 26-28.

Now those of you who were shrewd enough to predict they’d get off to a flyer would have “bought” their points at 28. Much like buying the BP stock for £2.

Today, they’re being quoted at 33-35. So what would you do? Do you think they’ll get more than 33 points this season? If you do, then selling your position back now wouldn’t be a good idea as if Blackpool finish the season on 40 points,  you’ve already have closed your position, costing you 7 points of your stake.

However. They could go on to not pick up a single point from now til the end of the season.

You decide this is the more like option now that other teams have sussed them out. If you’d have bought the 28 for £10 a point, you would then “sell” (the first number of the quote) back at 33. Netting you £50. Well played you!

So there you go. That’s the long and short of trading. The real key is working out what a good price is in the market you’re looking at. This really comes into its element in “in-play” betting which we’ll cover next week.

In the mean time, get your stripy trading blazers on and get practicing!

(Spread betting can result in losses that exceed your initial stake. Please ensure you fully understand the risks involved. We support responsible gambling.)