Spread betting, as a derivative which gives you great leverage of your money, theoretically allows anyone to become a millionaire in a short time. Quite literally, anyone can become a spread betting millionaire in the stock market – but in practice to become rich spread betting you need a fair dose of discipline, patience and some money to start with!
Financial spread betting has been around for a long time now as you can see below from an extract of a London newspaper. Spread trading has become an incredible industry in the UK and with success stories like these it is little wonder.
Of course, there are losers, and the fact that the bookmakers are still in business confirms that there are more losers than winners, but trading financial derivatives is still one of the ways that you can realize large profits in a short period. The spread in spread betting, the difference between the buying and selling prices which gives the bookie a profit, means that you need to pick underlying securities that are destined to make a reasonably sized move in the desired direction. The initial part of the move covers the cost of the spread, and the rest is profit.
“If you start with £1,500 and grow it at just 10 per cent a month,” using the compound interest calculation for me on Google, “your stake will balloon to £1.4 million in six years.”
Million Dollar Trader
I’ll never have £200m because if I hit a few million I’d happily quit and move to a tropical country to put my feet up for the rest of my days. Why does Carlos Slim want more money when he already has $69 billion? The only reason is greed. Strip him of his cash, give him a pat on the back and £100,000,000 and send him off to retire in comfort. All the poor people in the world would be far better off if we capped the greedy folk.
If you want to make money from spread betting then you need to understand what is moving the underlying prices. There is a wide selection of markets that you can spread bet on, and you should stick with the ones that you are familiar with, so that you have a better chance of determining which direction they will go in. There are many books and courses written about trading the financial markets, and it is worth learning about technical analysis as this will give you the tools that allow you to put the odds in your favour when selecting what to bet on.
Another point is that spread betting allows you to over stretch yourself and your resources very easily, and the almost inevitable consequence of that is losing your account. This is particularly true for forex trading where high leverage is the main attraction for many small account holders hoping to make a fast buck. The idea that something can make you rich with small amounts of starting capital gives people hope that they can make it. But in reality, no matter what you trade it’s about managing your downside (risk) with a healthy leverage level.
One discipline I use is that I only leave £xk in my account and regularly withdraw profits to stop myself from ever losing more than I can accept. With IG they will close you out before zero – it’s happened to me before. Additionally, it is not necessary to be betting all the time, and if you try to you will probably be faced with picking some bets which are not as good prospects as you would wish, and that will reduce your performance. You should wait for the bets that seem to offer the best odds of winning and not try to force the action.
One of the keys to making a profit is to not lose too much. In fact, if you concentrate on not losing rather than on winning then you may find that you profit more. The profitable bets will take care of themselves, and you will be actively minimizing the downside, retaining more in your account. Learning about trading will teach you about money management, which will train you to never risk more than you can afford to lose, even if you have a run of losses.
One of the lowest risk strategies you will learn is to follow a trend, rather than trying to anticipate the exact moment of a trend ending so you can bet on the reversal in price. Established trends tend to continue for a time under their own momentum, and it is not necessary to anticipate the extreme values in order to capture a profit during the safer main move of the trend. Technical analysis, using indicators on charts, will usually give you a warning of when the trend is slowing and likely to stop.
Exercise discipline and good judgement in your trading and your results should improve and hopefully help you on your way to financial freedom and ultimately wealth! But beware, there are never any guarantees with the stock market. Share prices can fall — and often fall heavily! — as well as rise
Stock Market Billionaires
Are there people that actually spread bet as a way of making a full time living?
This question in isolation doesn’t really make much sense: it’s a bit like asking “do people make a living using a hammer?”. Spread betting is just one tool among others of the trade (like shares, futures, or options..etc) of playing the market, like a hammer is part of many trades, but few people make a living using hammer exclusively, nobody is a “hammer professional”. so while, yes, people do play the market for a living — that’s what a large proportion of the finance industry is about — it’s likely that very few of them use spread betting exclusively, because other tools are more appropriate in certain circumstances.
Market Wizards is full of stock market traders/investors that have all made billions using different trading strategies, instruments and styles of trading including spread betting. Some do not use stops – meaning they can get wiped out. A few months ago Connaught would have been considered by any of his fundamental measures a far more secure company than TW., yet look what happened to CNT. He picks companies that could easily breach banking covenents and end up worthless so he gets his high reward from taking high risks, yet he doesn’t seem to realise it is high risk. He doesn’t say how he would normally take profits. If the market tanks back down to 3500 would he still be holding his long term buy and holders? You could argue its nearer to the trading style of Jess Livermore who ended up making fortunes and losing fortunes, making fortunes and losing it again. He even added to losing positions of wiped out companies in the belief they would recover. He ended up taking his own life and left just $5m which was all that was left (and only because it was in trusts he could not touch).
Having said that spreadbetters can learn a lot from Livermore’s experiences:
- How taking a huge position and adding to it can either make or break you
- How, when he was trying to offload a large amount of shares, he would ‘manipulate’ the stock price up through judicious buying before selling his stock. Of all the books I’ve read I think his was the best, and most relevant for today, in how the market is manipulated. Some of his observations, such as the reaction of the share price to round numbers and adding to winning stocks are still practiced by stock market traders today.
I read a few week ago a new letter from Trading Psychologist Dr Van Tharp – ‘I have never met a winning day trader’. My thoughts were; why would a winning day trader come to see a skrink? Personally I have made money day trading using spreadbetting, long term investments, swing trading but most of all from trend trading (intraday and long term). I lost most money when I didn’t really know what I was up to.
Making Serious Money Spread Betting
Is it Possible to become a Self-Made Multi-Millionaire Spread Betting?
‘I introduced a ‘skint’ friend to spread betting, with a credit account with IG Index. He made 60K in first 12 months on Morrisons! He then urged me to take a position on Tullow at about £2 but I thought it too risky at the time. At £5 he was up to £1000 a point, the rest is history, he now has a Chateau in France…’
I don’t hear many of these tales! Granted, spreadbetting can be a good lifestyle for many people. But if you want to take your chances at making 200k+ then you are best not doing it from home, you are better going to a trading arcade and paying a desk fee for level 1 access and news flow. To trade spreadbetting from home and want to make 25k I would say you need to start with 10k and be willing to lose it all. Then if after 6 months you still have the 10k you *should* have learned enough to improve your chances of making money.
As I have mentioned several time in the past risk management is key when it is your own cash. The kind of guys who make money are not the sort of guys who make a quick buck and sit back happy…the level of commitment, greed and energy required is very unusual…
“At the end of the day remember that money is nice, but freedom is much more fun…. If you’re going to make something your living – make sure you enjoy it!”
It is not impossible to make money trading but if you are looking for a get rich scheme the stock market definitely isn’t it, unless of course you have years of experience and massive capital. As UK trader Sandy Jadeja points out it would be great to wake up in the morning, put on a trade at a magical number at a specific time, and then walk away to play golf before a relaxed lunch, with maybe a break at a luxurious resort every month but this is not what happens and statistics show that most people who day trade end up losing money. Expect long hours – and I mean long (!), and expect to make mistakes and have losing trades as well as your personality and maybe lose all your friends!
“When I started I probably made four times as many trades as I do nowadays. I’ve nearly got out of my very bad habit of chasing the market. It took a lot of hits to finally teach me what I knew was right in the first place. I really do believe that the longer we trade the better we become, purely by exchanging ideas and talking things amongst ourselves. Or maybe its because the really bad traders get washed out never to return early on. A little trick that works for me, is that if I make a (on reflection) naff trade, I make myself sit out the game for 1 week to reflect on it. Its surprising how work and family distractions really effect my game.”
And lastly beware of these spread betting and forex trainers that charge you thousands to listen to them. They are really nothing much more than charlatans. I have had dealings with some and am well aware of the lengths these guys go to, hence my efforts to show them up as the charlatans they are. I have called out several of them in public arenas with clear factual evidence – but amazingly enough people would rather believe that they can get rich quickly! Fortunately I never actually parted with money to use such guys, sadly not everyone is so fortunate. Also, the problem with many get-rich-quick systems out there is that there is very little substance and practical guidance on how to make any real money.
‘At the end of the day remember that money is nice, but freedom is much more fun…. If you’re going to make something your living at least make sure you enjoy it!’