When it comes to spread betting, every trader has their own individual approach formed by instinct, practice, advice from others and personal experience. That said, there are three categories into which most spread bettors tend to fall: day traders, position traders and swing traders.
Learning these different types of spread betting will help you to work out what type of trader you are, and therefore how to improve.
Spread Betting Day Trader
Day traders are the Usain Bolts of financial spread betting, sometimes opening and closing their trades within the space of a few seconds or minutes.
In a nutshell, day trading means never holding your spread betting positions for longer than a day and, more specifically, never overnight. Day traders tend to place numerous spread bets during the day, focusing on narrow spreads and markets with plenty of movement.
Spread betting in this way can be time consuming and requires close market analysis (whether fundamental, technical or a combination of the two) to select appropriate stocks and positions.
Apart from avoiding overnight financing rates, the positive side effect of this spread betting technique is the reduced risk in not leaving yourself vulnerable to the potential losses that can occur in the hours while the stock market is closed; any news and events set to shape the next day's opening prices will not affect a day trader's capital.
Spread Betting Position Trader
Position traders place spread bets for the long term, holding them for weeks or even months on end.
This style of financial spread betting relies on the trader understanding the long-term fundamental trends of a market by using daily, weekly and monthly charts to determine the market's eventual direction.
Once they are convinced that a stock is in a trend and at an appropriate price, they will open a position and ignore any short-term fluctuations in the hope of making a significant profit over a longer period, unless of course they reach their stop loss.
The fact that those same short-term fluctuations are exactly the type of movements from which a day trader profits is what makes position trading the opposite of day trading.
Spread Betting Swing Trader
If day traders and position traders represent opposite ends of the spread betting spectrum, swing traders sit somewhere in the middle.
For the swing trader, spread betting is about mining the markets to find stocks which have the potential to move significantly in a relatively short space of time, which can be anything from a couple of days to a couple of weeks.
Swing traders are similar to day traders in that both seek to profit from a financial spread bet with a fast turnaround, but swing trading requires greater technical analysis of price trends and patterns in order to single out the stocks with the most generous price momentum on a short-term basis.
Spread trading carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.
Article provided / approved by Finspreads which is a trading name of City Index Limited ('CI'), which is a spread trading and contracts for difference ('CFD') provider. CI is authorised and regulated by the Financial Services Authority, Firm Reference Number 113942.
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'Finding Your Spread Betting Identity' edited by DB, updated 01-Dec-10
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.
