Reply to: Spread Betting Online within Ltd Company

[lindsay~]

I'm tempted to buy the Ftse 100 or even a selection of banks for Monday. With this bail out agreed surely things have to go up a bit - if only for a while?

Famous last words.....

[Bob Dalek]

Put your entire worldly goods on the first nag in the next race. You'll be as well off doing so.

[ookook]

It is one of those times where you need to go and headbutt a brick wall.

Not reallly, I'm quite happy with the money I've been making longing HBOS for the last few days, All Santas posts about trading are informative and useful - I was just making a point about the commission relating to CFD's - it looks like Spread Bettings a far better option so thats the way forward.

[wizard1974uk]

ok, good luck

It is one of those times where you need to go and headbutt a brick wall.

[SantaClaus]

Yeah erm, thanks Warren, Once again you rabbit on about spread betting when I'm talking about CFD's. I didn't bother including the stoploss data in the above example because its irrelevant - I was giving an example of excess commision.. The only mildly interesting point you've made is that spread betting doesnt have minimum commision - I didnt know that so I'll check them out. I've done all trading with CFD's or normal shares until now.

ok, good luck

[ookook]

I'm not sure I want to be drawn into a long beginners conversation on trading, but I will try to help:

OK, first question. Why are you using CFDs? Spreadbetting is tax-free and the minimum bet on for instance the eur$ is 0.50p per pip.

Secondly, where's your stoploss in the above calculation? Work out your risk based on the distance from entry price to your stoploss multiplied by your pip amount. Remember, you are not risking Barclays shares going down to zero, you are risking them going down to your stoploss level.

At the time of writing, IGindex were quoting Barclays at:

Sell 368.1 Buy 369.9

Thats a 1.8 pip spread. There is no further comission, the minimum bet is £1, guaranteed spread is a further 1.11 pips.

Lets say you bought at that point and at a place in the market where you thought it wouldnt go more than 30 pips against you.

So take your original £200 risk / (30 pip stoploss + 1.8 spread + 1.11 guaranteed stop charge) = £6.07 per pip.

You would place a trade with a stop of 30 pips at £6.07 per pip.

Ok lesson over.

Note: This post is for educational purposes only. I do not advocate trading the markets with money you cannot afford to lose.

Yeah erm, thanks Warren, Once again you rabbit on about spread betting when I'm talking about CFD's. I didn't bother including the stoploss data in the above example because its irrelevant - I was giving an example of excess commision.. The only mildly interesting point you've made is that spread betting doesnt have minimum commision - I didnt know that so I'll check them out. I've done all trading with CFD's or normal shares until now.

[SantaClaus]

Ahh but its the commission I'm talking about..

Using the example of CFD's and IG markets;

IG markets has 0.1% commision, minimum £10 each way on any trade

So you bet £200 on Barclays long - your commision is £10 or 5% of your bet.

If we say for arguements sake your leverage is 10% giving you £2000 worth of shares - then the underlying share price has to move .5% just to break even! and thats just on the way in - same applies on the way out.

So if you get lucky and Barclays share price rises 5% - giving you a £100 profit - then after the commision in and out you get £80 out - which is the equivalent of a 4% rise....

Same applies if you lose - a 5% fall will cost you £100 of your original bet - plus £20 in opening / closing fees - making £120 in total, or the equivalent of a 6% share price loss

so to make any bet worthwhile in terms of minimum commision you need to be betting £1000 minimum - which according to your advice above would necessitate 100,000 in your account.

I'm not sure if the same applies to Spread Betting and I'm happy to be corrected on any of the above

I'm not sure I want to be drawn into a long beginners conversation on trading, but I will try to help:

OK, first question. Why are you using CFDs? Spreadbetting is tax-free and the minimum bet on for instance the eur$ is 0.50p per pip.

Secondly, where's your stoploss in the above calculation? Work out your risk based on the distance from entry price to your stoploss multiplied by your pip amount. Remember, you are not risking Barclays shares going down to zero, you are risking them going down to your stoploss level.

At the time of writing, IGindex were quoting Barclays at:

Sell 368.1 Buy 369.9

Thats a 1.8 pip spread. There is no further comission, the minimum bet is £1, guaranteed spread is a further 1.11 pips.

Lets say you bought at that point and at a place in the market where you thought it wouldnt go more than 30 pips against you.

So take your original £200 risk / (30 pip stoploss + 1.8 spread + 1.11 guaranteed stop charge) = £6.07 per pip.

You would place a trade with a stop of 30 pips at £6.07 per pip.

Ok lesson over.

Note: This post is for educational purposes only. I do not advocate trading the markets with money you cannot afford to lose.

[ookook]

Yes, I think you've missed something!

2% of a £10,000 account is £200. So your risk in the market at any time should not exceed £200.

Aim for a risk reward ratio of 1:2 or better, so your winners will cover your losers even if you are only getting 50% of trades right.

So lets say we risk 30 pips to make 60. Add 3 pips for spread, thats 33 to make 60. Thats approx £6 per point (£200 divided by 33). If you win you make £6 x 60 pips = £360.

Now lets say you aim for 3 winners and 1 loser a week.
3 x £360 - 1 x £200 = £880 per week on a £10,000 account.

In order to get this right, you need lots and lots of patience to wait for the best setups and pass on the mediocre ones.

Thats all I have time for folks. Must get back to my charts

Ahh but its the commission I'm talking about..

Using the example of CFD's and IG markets;

IG markets has 0.1% commision, minimum £10 each way on any trade

So you bet £200 on Barclays long - your commision is £10 or 5% of your bet.

If we say for arguements sake your leverage is 10% giving you £2000 worth of shares - then the underlying share price has to move .5% just to break even! and thats just on the way in - same applies on the way out.

So if you get lucky and Barclays share price rises 5% - giving you a £100 profit - then after the commision in and out you get £80 out - which is the equivalent of a 4% rise....

Same applies if you lose - a 5% fall will cost you £100 of your original bet - plus £20 in opening / closing fees - making £120 in total, or the equivalent of a 6% share price loss

so to make any bet worthwhile in terms of minimum commision you need to be betting £1000 minimum - which according to your advice above would necessitate 100,000 in your account.

I'm not sure if the same applies to Spread Betting and I'm happy to be corrected on any of the above

[SantaClaus]

I've seen this advice before and always wondered about it. Ignoring the demo account for now - if you had a fund of say 10K to trade with on leveraged CFD's or spread betting, then 1-2% of your account would only be £100 -£200 per trade.
Given that the minimum commision is £10 each way - percentage wise its pointless as you're 10-20% down before you even start to win or lose.
The only way to comply with those rules is to have £100,000 in your account to play with!!
Have I missed something here?

Yes, I think you've missed something!

2% of a £10,000 account is £200. So your risk in the market at any time should not exceed £200.

Aim for a risk reward ratio of 1:2 or better, so your winners will cover your losers even if you are only getting 50% of trades right.

So lets say we risk 30 pips to make 60. Add 3 pips for spread, thats 33 to make 60. Thats approx £6 per point (£200 divided by 33). If you win you make £6 x 60 pips = £360.

Now lets say you aim for 3 winners and 1 loser a week.
3 x £360 - 1 x £200 = £880 per week on a £10,000 account.

In order to get this right, you need lots and lots of patience to wait for the best setups and pass on the mediocre ones.

Thats all I have time for folks. Must get back to my charts

[MickyG]

Spread betting

I have started experimenting with spread betting also, only small amounts 10 p per point.

One thing I have found is that paper trading is miles away from the real thing, even at 10 p per point. With paper trading there is absolutely no emotion attached, when you SB for real you have loads of emotion, good and bad.

I personally think they are like chalk and cheese. Shorting the market sounds much simpler than it actually is when you have real money riding on the deal.

I think as much research as possible and then have a go, it might not be for you but it'll be a pretty cool journey of self discovery while it lasts.

Cheers
Mike

[ookook]

I am willing to bet here that you will hand that £1500 back to the spreadbetters today or this week.

Here's my advice:

Step 1.
-------
Open a demo account. Trade a maximum of 2% of your account per trade. Only take trades with a risk/reward of 1:2 and try to triple your account.

Only then are you ready to trade with real money.

Step 2.
-------
When you have ignored the advice in step 1 and blown your live account, go back to step 1 and repeat.

I've seen this advice before and always wondered about it. Ignoring the demo account for now - if you had a fund of say 10K to trade with on leveraged CFD's or spread betting, then 1-2% of your account would only be £100 -£200 per trade.
Given that the minimum commision is £10 each way - percentage wise its pointless as you're 10-20% down before you even start to win or lose.
The only way to comply with those rules is to have £100,000 in your account to play with!!
Have I missed something here?

[THEPUMA]

When you join IG Index, they tell you they don't care if you win or lose, because they hedge their trades in the underlying market.

In fact, if hedged, they want you to win so that you come back.

[SantaClaus]

wow - I always wondered what Santa Claus did the rest of the year. Now we know that and his real name too!

Yep, until now, only Mr YouKnowWho knew my real name.
Now he knows he wont be getting any more tax from me unless he invents a retrospective tax on spreadbetting.

[thunderlizard]

wow - I always wondered what Santa Claus did the rest of the year. Now we know that and his real name too!

[SantaClaus]

Santaclaus - how right your are!

Not even a week just a few hours and I lost the lost speculating a further dive of the FTSE after the DJ plummeted yesterday. Ah - but its all part of the learning curve of paper trading.

Thanks for your advice I think its sound from experience perhaps?

Hi Lindsay,

Yes its from experience of many blown accounts and numerous strategies.

I did very well buying the FTSE yesterday and selling the euro today. But this is after a lot of experience.

There is no Holy Grail in trading. The only Holy Grail is yourself. No indicator or strategy works all of the time. You need to develop an intuition by scanning years worth of charts. Certain patterns will happen again and again. But each time they will look different.

And risk management is the key to success.

Maybe I should set up a trading blog for ex-contractor wanabee traders

Simon