4 most popular spread betting strategies

• Trading strategies are guidelines that show traders possible entry and exit points in the market. They empower traders to make informed decisions while avoiding emotional trading.
• Spread betting is a leveraged product; with the help of trading strategies, traders have the guidelines to spot exit points in the market to limit their risk exposure.
• A trading strategy will be unique to every trader; factors to consider when choosing a strategy include trading style, risk tolerance, and trading goals.
• Every trading strategy can be fine-tuned to enable a trader to respond and react to continuously changing market conditions.
• The four main strategies this article introduces are market trend, breakout, reversal, and news-based.
• A trader can open a demo account to experiment with the various trading strategies mentioned in this article.

Spread betting strategies are guidelines for traders to better understand when to enter and exit a trade. Instead of just entering a trade without any insights, a strategy might guide you in showing the price levels that could be applicable to set market orders.

Strategies are designed to provide your trading with structure and a routine instead of making quick decisions on market movements based on your emotional response.

It’s worth remembering that spread betting is a leveraged product. This means it’s traded through margin, where investors deposit a small amount of capital to gain more extensive access to the market.

That said, trading with leverage through margin involves a certain amount of risk. When you close a position, the profits or losses are calculated based on the entire position amount, not just your initial margin deposit.

Having a particular strategy in place could help you manage those risks and guide you on where you could exit a trade to manage your risk per trade. 

No strategy is perfect, and no strategy fits every trader. 

Deciding which one to use might come down to your trading style, goals, and risk management plan. Trading strategies allow you to assess your trading performance and fine-tune the strategy to fit your style better.

As mentioned above, a trading strategy is a set of guidelines that show you where you could enter and exit a trade. Different strategies have different methods for helping you recognise and respond to various market conditions, guiding you on where you could open and close a position.

There are hundreds of different trading strategies, and trying to learn them all can become overwhelming. So, to keep things simple, below, you’ll see four spread betting trading strategies that might benefit beginner traders to know and learn.

The four strategies we’ll be covering are:

1. Market trend strategy

2. Breakout strategy

3. Reversal strategy

4. News-based strategy

Market trend spread betting strategy

In a trending market, prices move in a clear uptrend or downtrend. The way prices move identifies the upward or downward trend.

For an uptrend, prices are making higher highs and higher lows. And for a downtrend, prices are making lower highs and lower lows. You could also draw a trend line connecting all the higher lows in an uptrend while connecting all the lower highs in a downtrend.

Using this strategy, you could predict where the following reaction might happen based on the trend. For instance, when the price creates a new higher low in an uptrend, that might indicate that the trend might continue upward. 

You could open a trade once the new higher low has formed and the price is moving back up again. If the price is not creating a new higher high, that might mean the trend has been broken, but we’ll cover that later in the reversal section.

The trend trading strategy might attract longer-term traders because it allows them to follow the market’s momentum. However, that’s not to say short-term traders can’t benefit from this strategy.

You could also use other technical indicators, such as moving averages or the moving average convergence divergence (MACD), to better understand market movements.

You could use this strategy in a bull or bear market.

Breakout spread betting strategy

Breakout strategies involve price being range-bound or in a consolidating phase, mapped out as major support and resistance levels at key price points.

Traders looking to trade this strategy will look at the price moving towards one of these key levels and wait for the price to break out. Once the price breaks out, traders could look to enter the trade and ride the trend from start to finish.

You could use the volume indicator to detect an increase in volume at key levels. Combine this with technical indicators like the RSI or MACD to further confirm whether a breakout is probable.

To enter a trade, you could open the trade directly or place a limit-entry order at the key levels. The order will be filled when the price breaks above or below the support or resistance levels.

For instance, if you were looking at crude oil trading at $165, while the market has been consolidating for a couple of weeks now. You predict through your analysis that the price will likely break upwards, where you could place a buy limit-entry order at $170.

If the price breaks above the resistance level, the order will be filled, and your trade will be open; however, if the price doesn’t reach that level, your order won’t be filled.

It might also be essential to remember that breakouts won’t always happen ideally; sometimes, it will be a fake-out, either as a bull trap or a bear trap. This is where the market will break out of a key level only to reverse again shortly afterwards. 

By placing a strategic stop-loss order before entering a trade, you could protect yourself from significant losses if a fake-out occurs.

Reversal spread betting strategy

Reversals in the market happen when the price moves in one direction and then sharply changes in another direction. This could happen after a solid move to the upside or downside, and the price reaches one of the key support or resistance levels.

Reversals, like breakout and trending markets, can be traded in both bull and bear markets. 

Something to remember about reversals is that they could be mistaken for a retracement. Retracements are short movements in the opposite direction, which could be mistaken for a reversal.

In order to confirm that the price is retracing instead of reversing, you could use the Fibonacci retracement tool. If the price reaches key levels on the tool, it could confirm that the price is retracing; however, if it breaks those key levels on the Fibonacci tool, it could signal a reversal.

Another technique you could use to confirm a reversal is through candlestick patterns and chart patterns. Candlestick patterns such as the pin bar or engulfing candlesticks are known to signal a reversal, although that’s not always the case because nothing in the market is guaranteed.

Chart patterns such as the double top or bottom could also signal a price reversal, showing that the price has failed to break above previous highs or lows.

If you open a trade at key support or resistance levels and the price does, however, reverse, you could ride the entire move. However, if the trade continues in the current direction without reversing, you could be exposed to significant losses.

Analysing these types of trades might have to be done with caution while having a good understanding of candlestick patterns, chart patterns, and the Fibonacci retracement tool to limit risk as much as possible.

News-based spread betting strategy

Traders using this strategy focus more on fundamental analysis, such as news-related situations or financial events, to look for a possible trading opportunity. This strategy generally sees traders taking a more short-term approach to the market because they are looking for quick price movements.

Traders taking up this strategy might be more focused on a global view of the market because news and economic events could significantly affect a vast number of investors, shareholders, institutions, and companies.

If investors or shareholders see a news story or economic event as unfavourable, the prices of certain assets could drop because more sellers will try to protect their investments. At the same time, a positive news story or economic event could push up an asset’s price as more buyers might enter the market.

Let’s say, for instance, that Microsoft has a new technology that will increase workplace productivity; this could benefit the company. This news event will increase Microsoft’s share price because investors see this as a positive move by the company.

In the case of Microsoft, a trader might open a long position before or after the news release, hoping the price will rise. However, it might be essential to remember that the markets are generally very volatile around news or economic events. It might be best to have a good risk management plan in place and trade with caution.

Other economic factors that could influence market prices include when a publicly listed company shares its earnings reports, political events, changes in interest rates, presidential elections, or changes in a country’s financial policy.

Using this strategy could make it difficult for a trader to know when to close a trade, either in profits or losses. This is because news-based strategies are not dependent on technical analysis. However, a trader could incorporate technical analysis into this strategy to give them a better idea of when to close a trade.

Now that we’ve covered the four spread betting strategies for beginners and how each works. We’ll finish off with some spread betting tips that could be useful to remember in your trading journey. Let’s take a look at some of these tips.

1. The first tip that could help you in your trading journey is continuous education. You might have to spend some time learning everything you can about how spread betting works and some of the risks and benefits that come along with it.
2. Spread betting is only available to those who reside in the UK and Ireland; for those in other countries, there is an additional option: CFD (contract for difference) trading. If you’d like to learn more about the differences and similarities between these two derivative products, you can read more about Spread betting vs CFD trading.
3. Spread betting also has some tax advantages, such as not being eligible for stamp duty tax due to not owning the financial instrument and no capital gains tax on potential profits earned. However, it might be essential to remember that if spread betting is your primary source of income, you might be eligible to pay income tax because it could then be classified as a business or profession.
4. Next, you might want to set up a trading plan. A trading plan will assist you in becoming more disciplined in the market. Every trader has their own unique trading plan, which is personal to them. This plan could include a goal you might have with your trading. The goal has to be realistic and achievable with measurable results. Secondly, the time you have available to trade is crucial because it will determine your trading style. For someone who doesn’t have much time to monitor the charts, they could look into swing trading. Whereas, if traders have substantial time to observe the markets, they could look at day trading.
5. Before opening a live account, you could trade on a demo account first to get a feel for the markets. The majority of trading platforms have the option to open a demo account to practice on. You could test the various strategies with a demo account to see which suits you best.
6. If you don’t have a specific market in mind that you might want to trade, you could use your demo account to test various markets. The reason is that each market comes with its own volatility, liquidity, and risk level.
7. Lastly, your trading plan could include the amount of capital you want to risk and how much you want to risk per trade. The reason why managing your risk in spread betting is important is because spread betting is a leveraged product. Which, as mentioned previously, could magnify both profits and losses. One way to mitigate risk is by placing a stop-loss order if a trade goes against you.