What Is Wrong With Spreadbetting?

What is Wrong With Spreadbetting??

This is one of those early morning posts I've been thinking of for some time...

Probably better content than most 'paid' articles I've done... yet I'm mainly doing this for myself and getting the thoughts out of my head.

So what is wrong with spreadbetting?

The whole deal with spreadbetting is you can win big and lose big. The first trade I did with Next I was up over £400 within 24 hours at just a pound a point... so I know I can win big...

However...

You can also lose big too.

When you place a spread you HAVE to put a 'stop loss' on and a 'limit order' on. The 'stop loss' is a price you have to sell at if the share reaches a certain level. The limit order is a price you have to sell at if the share reaches a certain level.

And it's just struck me now... why is this the case and why do spreadbetting companies do this? Because the spreadbetting companies will make money when you trade in or out of a position. Say for example you are buying a spread in a share... you have to pay the 'buy price' which will be over the regular price of a share. When you are selling you pay the 'sell price' which is under the regular price of the share. The spreadbetting companies will make money both ways. So it makes SENSE FOR THEM to want you to buy and sell shares.

Thinking back over my share buying, I have had quite a few shares which have gone down in price but I didn't sell them. They went onto to recover and do much better. HSBC and BHP Billiton are two examples that come to mind. I was down around 10% on some of my HSBC shares but now I am up on all of them... some of my HSBC shares in fact I am up around 50% plus dividends.

But what would have happened if I had put a spreadbet on HSBC? I might have been 'stopped out' and missed all the potential gains...

In shares and spreadbetting all that matters is how much money you make. So you have to pick the right 'stop losses' and limit orders. Ideally you just want to put a spread on and it to zoom up... but that rarely happens. Still you should be aiming just to pounce on GREAT opportunities... and even then I think you should put quite a 'deep' stop loss on... probably at least 10% below the current price.

For me at the moment that means lower value in pence shares are better for me to spreadbet. Say for example I'm spreading Taylor Wimpey, which I am. It's currently trading for around 190p a share so it doesn't take much 'margin' or capital allocation for me to put a 'deep stop' on it. For a share like Imperial Brands, which is around 2900p, it takes much more margin.

Because quite a few times... I have been 'stopped out' of spreads which have then gone up. That costs me money.

Also, you have to be aware of the time you put into spreadbetting. I have probably been putting in a bit too much time and checking prices too much. When it's real money on the line you want to be aware of the price...

It's quite interesting to note my 'demo spreadbets' have done very well... and I have been much more 'buy and hold' with them. My pound a point on EasyJet and Next are both doing well. I've even been profitable in all my foreign exchange trades, despite knowing little about foreign exchange. For these trades I have just seen shares or FXs that I believed were cheap and went for it. I haven't even bothered to check them much as it's 'fake money'...

Maybe this should be more the case with my real spreads too...

Sometimes I may see a great opportunity then pounce to make a gain. This might not happen all that often though...

Because really nothing is 'wrong' or 'bad'... it's just your view on it. Potentially I can make lots of money in spreadbetting... potentially I could lose lots too. It's just a case of aiming to get as much as possible. However I must be fully aware of the game I am playing in.