Learn to be a Financial Hunter - Not the Hunted

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How to Learn Spread Betting and Prosper
Week 1: Trading Practice
The goals of the first week are to get you used to -
  • The online trading platform - This is run via the internet and it's where your trading account is controlled from

  • The buying and selling process including short selling - Especially how the bid-offer spread works and moves around in real-time

  • How the different orders work - In real-time trading, with live prices, so no theory

  • Taking profits and losses - And how the profit & loss is calculated

  • Understanding margin - How much deposit margin is needed to trade a certain position and how variation margin works for open trades

  • Managing multiple positions - How the software deals with a portfolio of different positions

  • Also anything and everything else to do with the online trading platform - In fact it's not a bad idea to stress test it, ie try to break it!
How to achieve the above
The first step is to fund your spread betting account with £100 - £200 if you haven't already done so. Note: as the spread betting firms are all regulated by the FSA all client money is guaranteed up to £48,000 per person.

Then look to trade at least 50 if not 100 times during the week with little regard for profit or loss, in fact it's immaterial at this stage. Now, before anyone thinks I've lost my marbles for suggesting this, there is a method to the madness and it's all to do with -

a) How and what you should trade, and
b) All trades will be risking the minimum of just 10p a point

The best way to trade 50-100 times with very limited risk is to pick 6 'popular' shares. I've just logged into my Finspreads trading platform and on the main price page they list the 'popular markets', within that you'll find about 10-12 individual shares. Here are 6 of them that I've picked, note they're all priced between 400p - 500p.

  • Barclays
  • Tesco
  • ICAP
  • Marks & Spencers
  • BAE
  • Aviva

Add these shares, or similar ones, to your Watch List. If you're unsure what a 'Watch List' is, or how it works, see your trading platform's user guide.

The trick to making this all work, meaning you can trade 50-100 times without losing more than £10 (you knows, you might even profit), is to go long 3 shares while simultaneously going short the other 3. This means your overall position will be flat as each long trade generally cancels out each short one.

But also look at the price of the individual shares - between 350p and 450p (at the time of writing). So even if you were long Barclays at 366p (10p a point) and the company issued an unexpected profits warning so knocking the shares 25% (91p) in an instant your total loss would be just £9.10.

However, if you picked shares priced at 1000p+ a 25% move at 10p a point would be mean a far larger loss, in excess of £25. Not a lot of money I admit but why put yourself in a position to lose £25 during the learning process when you could lose under £5 for the same lesson?

Get trading to build up experience
It doesn't matter if you buy Tesco at 11am, sell the position at 11.30am and then go short at 12pm. It doesn't matter if each of those trades makes or loses you 1.5 points x 10p stake (15p).

What's relevant is that you've executed 3 trades and each one will have taught you something about how the market, price and trading platform operates.

Using a football analogy it's similar to practicing free kicks or penalties. You're never going to become good by kicking the ball 3-4 times but do it 100 times or more and it's a different matter.

Your competitors will be prepared so must you be
Remember what I said on the first page of this guide - it's not you against the market, it's you against the other market participants, so always assume they're very well trained and prepared.

Week 1 is therefore about getting you to the stage where if you need to either enter or exit a position quickly (within a few seconds), you don't have to think - bang, the trade is done. And it's impossible to get to this position without practice, and lots of it.

Further trading ideas for week 1
  • Use every order multiple times - Enter limit orders, market, MOC, OCO orders and anything else that's either available or possible - but concentrate on what you're doing and learn, don't do it flippantly

  • Enter plenty of stop loss orders - Stop losses will probably be the key to whether you win or lose over time in the speculation arena so enter as many of these orders as you can and try to get stopped out whenever possible. Again, concentrate and pay special attention to a) how and when the stop loss is triggered and b) the all-important slippage

  • Do at least 100 different trades - The majority should be short term (speeds up your education) but make sure some of them last between 1-5 days

  • Get aggressive on a Thursday and Friday lunchtime - At 1.30pm (UK time) on both Thursday and Friday the main US economic figures are usually released and the markets can go haywire

Bookmark these 2 sites to get details on the week's economic releases
  • Bloomberg - Just US figures. They use a Traffic light system re what's important and what's not. Pay attention to the red ones
  • Forexfactory - Lists all the global figures and again use a traffic light system. Also, look at the Time column as this can be changed to your time zone, for most of us that will UK time

  • So make sure you aggressively trade the FTSE 100 and American S&P 500 index between 1.25pm - 2.00pm - And what do I mean by aggressive? Holding multiple positions for between 1-5 minutes. Also, make sure you use the majority of the different order types, including plenty of stop losses where again the aim is to get stopped out

The final point is extremely important because when the markets get volatile, not only can prices jump all over the place (the FTSE might rise/fall 40+ points within 20 seconds) but the orders are far more tricky to control. Plus, slippage can get to be expensive on stop loss orders.

Everyone needs this type of hardcore market experience as one day you might be fighting in the thick of the action and that's no time to be asking questions or be unsure of yourself

Summary
I know I've said it above but I want to drum the point home again - don't focus on the money and profits/losses you might make during the week because they're not important at this stage.

Instead the whole point of week 1 is to get you used to the trading platform, how prices move, and how the different orders work in real-time trading.

Finally, pay attention to what you're doing and don't just go through the motions of entering a load of trades as if you were tapping random numbers on a calculator. Focus on what's really happening when you enter a limit buy order or a stop loss is executed real-time. For example, when you enter a market buy order -

  • What price do you actually receive?
  • Is it different from the quoted price at the time, and if so why?
  • What happens when the markets get busy and volatile, are market orders filled at different prices, how and why can this happen?


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