16 May 2024 - 13min Read

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Spread betting

Top 4 spread betting strategies for beginners

With spread betting, using trading strategies could assist you in planning your trades while also giving you guidelines to follow in executing trades.

Throughout this article, we will look at some strategies that might be useful for beginner traders as they step into the world of spread betting.

We will cover four different strategies in detail and end with some extra tips to bring everything together.

TABLE OF CONTENTS

Key takeaways

  • Trading strategies are guidelines to show traders possible entry and exit points in the market, empowering 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.

Marc Aucamp

Content Writer

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Spread betting strategy explained

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, which means it’s traded through margin, depositing a small amount of capital to gain more extensive access to the market.

That said, trading with leverage brings a certain amount of risk to your trading. This is because when you close a trade, the profits or losses are calculated based on the entire position amount, not just your 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.

Top 4 spread betting strategies

As mentioned above, a trading strategy is a guideline to show you where you could enter and exit a trade. Different strategies have different methods to help you recognise and respond to various market conditions, guiding you on where you could open and close a trade.

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, price moves in a clear uptrend or downtrend. The way to identify the upward or downward trend is by how prices move.

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 is creating a new higher low in an uptrend, that might indicate that the trend is continuing to rise. 

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

You could also utilise other technical indicators like moving averages or the moving average convergence divergence (MACD) to get a better indication of market movements.

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

Market trend chart in spread betting

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 utilise the volume indicator to detect an increase in volume at key levels. Combine this with technical indicators like the RSI or MACD for further confirmation of 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. This is where the market will break out of a key level only to reverse again. 

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

Breakout spread betting strategy

Reversal spread betting strategy

Reversals in the market happen when the price moves in one direction and 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 it can 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 as well as 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.

Reversal spread betting strategy

News-based spread betting strategy

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

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. The result of this news will be that the share price for Microsoft will increase 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 prices in the market could include when a publicly listed company share their 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.

News-based spread betting strategy

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Spread betting tips: what you need to know

Now that we've covered the four spread betting strategies for beginners and how each works. We'll finish off with some 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 find out 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.

People also asked

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Market trend trading strategies are among the more popular spread betting strategies for share trading. This is because those participating in shares trading usually have a longer-term approach to the market. Trend trading strategies are longer-term trading strategies because they follow the entire movement of the market.
However, that doesn’t mean share traders can’t use shorter-term strategies, such as breakout or news-based strategies, when the market is experiencing higher volatility around key company announcements.

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When a trader opens a trade and the market starts going in the opposite direction, a trader could open a new position following the market in the same direction. A trader would implement a hedging strategy to manage risk and help offset any possible losses.
For example, if they open a long position on EUR/USD and the market starts declining, a trader might offset the losses from their long position by opening a short position.

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One of the most significant risks to consider is the losses a trader might sustain from spread betting. The reason for this is because spread betting is a leveraged product.
Yes, they only have to deposit a small amount of capital (margin) to gain full market exposure. However, the profits and losses from trades are magnified, meaning profits and losses are calculated based on the entire trade amount taken by the trader, not just the amount of margin.

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There are various market orders available for spread betting. Let’s look at six different market orders available in more detail:
Market orders:
These types of orders are executed immediately at the current market price, whether opening a position or closing it. In other words, if a trader wants to open or close a position immediately, they could do that through a market order.
Limit orders:
Limit orders can be buy or sell limit orders. If an asset is trading at a specific price, but the trader only wants to enter the market once the price is more favourable to them, they could place a limit order. The order will be placed only when it reaches their preferred set price. This is usually done when the market retraces before continuing in the desired direction.
Stop orders:
Stop orders are used to limit the amount of risk per trade. This is better known as stop-loss orders. A trader can place a stop loss order below a specific price point in order to protect them from substantial losses.
Trailing stop loss:
A trader could open a position with a trailing stop loss. This means that as the market moves in the predicted direction, the stop loss will move higher or lower depending on the market direction the trade is in. However, if the market starts going in the opposite direction, the stop loss won’t follow the new direction, which could trigger the stop loss.
Buy/sell orders:
After the trader predicts which way they think the market will move, up or down, they could set a buy or sell order. The order is executed when the price reaches the trader's designated level.
Market on close:
These orders will only be completed just before the market closes, sometimes just two minutes before the market closes. This can either be a stop order or a buy order.

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Forex spread betting strategies will all depend on the style of the trader. Most forex traders have a short-term approach to the market, looking for short-term price movements. They could implement a breakout trading strategy.
However, forex trading could also be traded through a longer-term approach. Traders looking to take that route could implement a trend market strategy.

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