Spreadbetting Project - Getting Started

Okay, it took a bit longer for me to define a strategy for this project. And I didn’t want to start using the spreadbetting account without it? on Monday. Blind betting without a clear strategy is gambling, very dangeroug gambling…

On the other hand, starting one day later means that I will lose all my money one day later, too, right? :-)

1. Spreadbetting basics

First of all, I have looked up the spreadbetting basics. Apart from the info from Wikipedia, ETrade has also got a nice guide about the matter. It works much easier as I thought:

Let’s take as a betting target the DAX (german stock index). In the spreadbetting account you see 2 prices for DAX:? BID and ASK. You always buy at ASK price and sell ad BID. In DAX, the difference between bid and ask are 2 points (in ETrade).

Example:

(6874-6876) Bid-Ask

Now, if you think that the prices are going up, you buy at ask price. And after the index rose X points, you cash out by closing the position: you sell at bid price.

Example:

- We? bet $5? at 6874-6876 that the prices will go up (buy $5 at 6876).
- The prices rose to 6880-6882 and you decide to cash out (sell 5$ at 6880).
- Therefore, you have won $20 (6880 minus 6876? = 4. And? 4 times $5 = $20).

Notice, that, in fact, DAX rose 6 points, but you only got paid for 4. The 2 points of the bid-ask “spread” are kind of “commission” the spreadbetting company gets. So, in the example above, if you buy at 6876, the index has to rise at least 2 points just to break even.

The bid for falling prices works just the same: you SELL at? BID price, and you BUY at? ASK to close the position later.

2. Defining the rules:

The essence of steady, constant progress is moderation: an equilibrium between risk and opportunity. It is better to go slow, but steady than to speed up and hit a wall at the end. Even in such a risky and volatile investment product like financial spreadbetting? you can minimize a lot of risks by limiting yourself? with? a few pre-defined rules? :-) Here are mine:?

So, these were my 5 limitation rules, like speed signs on a highway. Before defining a strategy, I needed a theory based on past experience, though. In other words, I had to study the past DAX behaviour and then do a strategy.

I will publish my findings? in the next post. Gotta go.

For now, farewell.

Starting work from home? The best opporunity is in real estate, however startup loans might be required. Make sure you don’t compromise on your health insurance. This insurance is an investment in your future. Therefore maintain regular checks on this.

March 27, 2007 | Filed Under Experiments, Spreadbetting 

Comments

3 Responses to “Spreadbetting Project - Getting Started”

  1. Spreadbetting Project « Krugergold Finance on March 27th, 2007 5:33 am

    [...] Spreadbetting Project [...]

  2. Andy on July 30th, 2008 3:52 pm

    how is your spread betting going? Hopefully you are still at it and have survived the volatility ;)

  3. roman on November 20th, 2008 2:35 am

    Yeah, I have survived the volatility with lots of luck. I will publish the outcome in my next post. Stay tuned!

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