Researching spread betting positions is by some way the trickiest element to being a successful trader. Anything short of a well-researched, well-reasoned position is equivalent to gambling, and you can expect to lose more times than you win if gambling is your strategy. With research, the aim is to pinpoint earnings opportunities that the market doesn’t seem to have spotted, and in doing so cash in while the rest of the world cottons on.
Fortunately, individual traders have the advantage of being a little more dynamic than many of their large, institutional competitors, and as such it is possible to get ahead of the curve and bag yourself some PIPs. However, the real challenge lies in knowing what to look for, and reacting on that information when you see potentially profitable conditions emerging. Most of the UK spread betting companies offer free economic indicators, daily and weekly market analyses, and performance analytics.
Market Anomalies
One of the best ways to get on top of the markets, and one of the key areas in which spread bettors focus their attention is on market anomalies. Markets work to reflect the true value of an asset or instrument over time, and they behave in a cyclical fashion gravitating around a certain unspoken but agreed value for the market being traded. For example, a share might be seen to be worth around 100p, but might trade up on optimism to 105p and then down shortly afterwards to around 98p as investors buy and sell at the points they think represent maximum and minimum prices.
Where traders can profit is from perceived market anomalies, or periods where the market is either over or under priced from where it realistically should be. This can be practically monitored through the use of a number of different strategies and graphical analysis, identifying the resistance and support points of a share price to better identify profitable buy and sell levels.
Economic Indicators Yet to Be Priced
One of the biggest factors that drives market movements, no matter what’s being traded, is economic indicators. Economic indicators are announcement and economic goings on that are announced on a daily basis of varying different types, which can lead markets to buy up or sell down depending on the nature of the indicator. For example, if oil prices starkly rise, airlines might see a fall in their value off the back of the news because they could face higher fuel costs.
Whenever an economic indicator is announced, the market will respond to that announcement if it has a bearing on their trading rationale. This provides dynamic traders with a short window of opportunity to capitalise on the announcement (and the gap between the actual indicator figures and what the markets had been expecting) to take their position in the relevant market. Getting it right, off the back of an economic indicator, has the potential to lead to significant returns, so traders are frequently concerned with economic goings on throughout the trading day.
Knowing what preludes a market movement in either direction is an important aspect of becoming a successful trader, and understanding the driving factors behind traders’ decision making it the key to doing well over time. At any given time there are vast earnings to be made for the trader who understands how to forecast the markets, and by turning your attention to finding profitable market conditions like overpricing and surprise outcomes, you can trade successfully and lucratively through the spread betting markets.
The Role of Research in Spread Betting
The financial markets have, since their first inception, proven to be an attractive place for those with the ability and determination to make money. A highly lucrative environment, financial trading has always attracted the brightest and best, leading to massive institutional investors which trade substantial volumes and have substantial resources at their disposal for reading and interpreting market behaviours over the short, medium and long term.
Undeniably the most important part of the spread betting game takes place before a trade is placed, and is an ongoing process that must be conducted each and every time you consider entering a position. The trouble is, as an individual trader, you’re competing in a marketplace that is comprised of thousands of experts, many of whom will have years of experience, the best trading education money can buy and the support and infrastructure of other, similarly well-placed individuals.
As an individual trader, of course you’re not competing directly with other investors, but you can’t write off the impact of trading under these conditions. A good rule of thumb is to assume that everyone else knows a great deal more than you when it comes to the markets. This isn’t self-deprecating – it’s almost certainly a fact, and it’s an important realization on the path towards levelling out the playing field.
The key to trading success is research. Research breeds knowledge, and knowledge breeds more sensible, more logical decision making. While you also need a good deal of luck to swing in your favour, the research element is one piece of the market puzzle that you can control, and it pays serious dividends to make sure you are committed to finding out everything you can about trading theory and current market affairs, to ensure you’re in the best possible place to start trading.
What and Where to Research before Placing a Spread Bet
Knowing what to research requires an understanding of the markets you are trading on, and how they respond to wider economic and political goings on. To start with, it’s a good idea to pull back for a second and consider why markets move in price in the way they do, and what this means for traders.
Say, for example, you are spread betting on the FTSE. If unemployment in the UK falls, it is likely that the FTSE will be buoyed as a result, and will possibly even show a rise in response to the announcement. This rise might be short-lived, or it might not materialise, but the theory behind this market movement is plausible because of the way the market is priced. If more people are in jobs, that means more people have a greater disposable income which in turn could lead to higher consumer spending and boost company profits, particularly in the retail sector.
This scenario may or may not occur as a result of a fall in unemployment depending on other factors (including whether the fall was expected, and the specific types of employment doing well), but for the purposes of the research question, you need to understand what kind of thing influences markets in order to give yourself the best possible chance of deciding how to respond.
Economic indicators are always a good way of judging future market movements, and you need to be constantly on top of what figures and reports are being published in the UK, the USA, Europe and possibly even Asia to give yourself a real broad base of knowledge. This doesn’t mean that you need to spend hours reading government reports and figures – simply catching the headline figure and maybe a couple of opinions about the figures should be enough to give you an idea of how things might play out on the markets.
Another key area you should be researching is the financial performance of companies on which you are spread betting, or the market climate for the particular asset or commodity you are hoping to spread bet on. Any data specific to the market, asset or instrument on which you intend to spread bet is an essential read as far as bolstering your knowledge is concerned, and it pays to make sure you keep on top of things in a general sense in order to give you a fighting chance of reacting to existing opportunities and identifying future ones as you progress through your spread betting career.
Where to Research your Spread Trades
Knowing what you’re looking for is one thing, but knowing where to find it is something quite different. The first port of call for most traders nowadays is the Internet, and for the purposes of your research the Internet will be an invaluable tool. The trouble lies in differentiating opinion from fact, and it is important to make sure that while you absorb both, you treat opinion with the credibility and weight it deserves – while not always the case, it could be argued that an opinion from a respected financial journalist with citations and structured arguments should be given more weight than an anonymous forum post.
The main stops for uncovering research and investment leads are news websites and other traditional mainstream media sources, investment blogs or columns and online trading forums. Essentially, you want to read as much commentary as you can, both formal and informal, to give yourself the best idea of what’s going on, and to get a feel for how the markets might be likely to respond to particular outcomes.
By being on top of you research and becoming a genuine expert in the financial markets (and in particular in the markets you trade), you can do yourself a real favour in making it easier to identify winning spread bets. A thorough, consistent research and knowledge plan starts to put you in the same league as successful traders in terms of investment intelligence, which paves the way for successful transacting over the long-term.