Dumb ass money making idea I've just dreamed up

[KentPhilip]

On the whole, just after a listed company pays a dividend the stock price falls. Not always, but quite often.

So I'm going to look at a list of companies that pay their divis like clock work (monthly or quarterly be best) and then put a spread bet (with a stop loss just above the current price) on just before the ex dividend date.

Do you think I'm onto a winner?

No. Spread bookmakers always add an "adjustment" to your overnight position to take into consideration the effects of overnight interest rates and dividends payable (either explicitly with individual stock positions or aggregated over all stocks for index (FTSE) bets).

If you really want to make money on the stock market, try setting up an application that googles the name of every company traded on the stock exchange every minute, and look for trends in the number of search results returned for each. As a particular share name term gains results (as a result of increasing chatter about them on blogs etc) you might be looking at a move in the price pretty soon, allowing you to front run the change.

[Jog On]

If you're hearing about it in the news/website/email/(printed magazine! ) you've missed the move.

Stop loss = when price moves against you a certain amount you close the trade. It's a level at which you decide your trade idea is wrong. So if you buy something at 1.5000 you might decide that if it goes down to 1.4900 you're out, your stop loss is 1.4900 and 100 points negative.

Then you decide how much of your equity you are prepared to risk on given trade and work out your position size in accordance.

So as an example - say I have £10k in the account, I have a risk level of 2% per trade then I will risk £200 per trade. I see a setup and decide that if it moves 100 points/pips/ticks against me I'm out

£200/100 = £2/tick(pip/point etc)

Stop losses and money/risk management is what separates successful speculators from people who lose money gambling at it.

Obviously you need an edge so you make more than you lose over the long term as well

[monobrow]

If you're hearing about it in the news/website/email/(printed magazine! ) you've missed the move.

Stop loss = when price moves against you a certain amount you close the trade. It's a level at which you decide your trade idea is wrong. So if you buy something at 1.5000 you might decide that if it goes down to 1.4900 you're out, your stop loss is 1.4900 and 100 points negative.

Then you decide how much of your equity you are prepared to risk on given trade and work out your position size in accordance.

So as an example - say I have £10k in the account, I have a risk level of 2% per trade then I will risk £200 per trade. I see a setup and decide that if it moves 100 points/pips/ticks against me I'm out

£200/100 = £2/tick(pip/point etc)

Stop losses and money/risk management is what separates successful speculators from people who lose money gambling at it.

Obviously you need an edge so you make more than you lose over the long term as well

Actually, what you have described is a guaranteed stop loss. Pretty important as with a normal stop loss you get filled on the way down with the market and this can make a huge difference to your wealth.

[Freamon]

Guaranteed stop losses are very expensive, especially in spreadbetting markets.

As KentPhilip says, spreadbet providers will adjust your holdings for the value of the dividend paid. In the real market, if you are short the common stock when the dividend is paid, you have to pay that dividend to the person who loaned you the stock. The spreadbet providers are short the stock in the real market to hedge their exposure on your position, so they'll just pass this cost on to you via the adjustment.

Automatically googling the company name to look for trends might be an interesting experiment. Some hedge funds are already doing something similar with twitter, to look at overall market sentiment:

AllAboutAlpha: Hedge Fund Trends & Alternative Investment Analysis» Hedge Fund Industry Trends Today's Post » HFs R AWSUM!!!

[Freamon]

BTW, concerning stock-ramping spam email, this guy collects such spam and uses it to find stocks that have had an artificial boost due to spam, to short them on the way back down:

Short Selling Penny Stocks