Tips for Trading Stock Market Indices
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Many traders and investors have trading rules and tips to help guide their investments. To me too many tips are on a particular trade and do not focus on strategies. At the same time too few tips are based on how to reduce your risks.
If you are a short term investor and trading the markets between anything from 1 minute to 3 months then you have probably come across spread betting. Of course, as with all investments such as trading shares, funds, pensions, housing etc, you can lose money. With spread betting you can lose more than your initial investment.
Having said that, with spread betting your risks can be reduced by using a Stop Loss. A Stop Loss works as an automatic request to close your trade if your position moves against you by a preset amount. Note that some stop losses are not guaranteed.
Also there is a wide variety of markets available through spread betting and investors are not limited to stocks and shares. You can spread bet on stock market indices, foreign currency pairs and commodity prices. This brings me nicely on to my next point, try to trade the markets you know. If you have little experience of the US stock market but have a good appreciation for the Crude Oil markets then you are probably better off trading the Oil markets.
Also, keep your direct trading costs as low as possible and enjoy the fact that broker's fees and commissions are not charged on spread bets.
Furthermore, be tax efficient when you trade and take note that there is no income tax, capital gains tax or stamp duty to pay on spread bets*.
Don’t restrict yourself to normal market hours. Naturally the news that affects the markets comes out 24 hours a day. The 24 hour trading that some spread betting companies now offer provides a host of interesting opportunities. The underlying markets will still close but you can carry on trading markets like the German DAX, Japanese Nikkei, UK FTSE, Gold and major Currencies from Sunday night all the way through to Friday.
And when the news does come out make sure you can trade. In order to spread bet you do not take possession of any stocks, assets or resources. You are just speculating on the future price of a market. This allows you to place trades quickly and with little fuss; a very useful feature in fast moving markets.
So whilst there are many plus points, you still need to remember the potential downside. Ensure that spread betting matches your investment objectives. Familiarise yourself with the risks involved. Spread betting does carry a high level of risk to your capital. Seek independent advice where necessary.
Stock Market Indices Spread Betting Comparison
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| FTSE 100 Daily - Spread Size |
1 |
1 |
1 |
1 |
1 |
1 |
1 |
1 |
| FTSE 100 Daily - Min Stake |
£1 |
£0.50 |
£2 |
£1 |
£1 |
£1 |
£1 |
£1 |
| FTSE 100 Future - Spread Size |
4 |
4-8 |
6 |
4 |
4 |
3 |
4 |
4 |
| FTSE 100 Future - Min Stake |
£1 |
£0.50 |
£2 |
£1 |
£1 |
£1 |
£1 |
£1 |
| Wall St Daily - Spread Size |
2 |
1 |
2 |
2 |
2 |
2-4 |
2 |
2 |
| Wall St Daily - Min Stake |
£1 |
£0.50 |
£1 |
£1 |
£1 |
£1 |
£1 |
£1 |
| DAX 30 Daily - Spread Size |
1 |
1 |
1 |
1 |
2 |
1 |
1 |
1 |
| DAX 30 Daily - Min Stake |
£1 |
£0.50 |
£2 |
£1 |
£1 |
£1 |
£1 |
£1 |
| S&P 500 Daily - Spread Size |
4 |
4 |
5 |
4 |
3 |
5 |
4 |
4 |
| S&P 500 Daily - Min Stake |
£1 |
£0.50 |
£1 |
£1 |
£1 |
£1 |
£1 |
£1 |
| Nasdaq 100 Future - Spread Size |
3 |
4-10 |
4 |
3 |
3 |
4 |
3 |
3 |
| Nasdaq 100 Future - Min Stake |
£1 |
£0.50 |
£4 |
£1 |
£1 |
£1 |
£1 |
£1 |
Comparison Notes
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It 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.
Article provided / approved by Financial Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'Tips for Trading Stock Market Indices' edited by DB, updated 10-May-10
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