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FAQ Page 4 - Question 36
Q: Would you recommend using spread bets to day trade?
A: NO, in fact I wouldn't recommend day trading to most people, spread bets or not. It's very hard to make money as a day trader because you're limiting your profits all the time (market can only move so much during a day) alongside taking on a lot of costs, commissions and bid-offer spreads.
There are very few day traders who actually make money although the lure is always present because there's a lot of action in the markets everyday. A common mistake many fall into is saying something like 'I should be able to take on average 10-15 point of the FTSE 100 every day'. Looks easy but 90% of market participants including myself would chop their right arm off for a guaranteed 10 points a day.
If you try and day trade with spread bets then I think there's a 95% chance that you won't make money. However you may actually make a gross profit on your trades but the cost of doing business will eat into this like you wouldn't believe.
What you should do is take the cost of doing business and multiply it by x number of days to get some sort of feel for the expense involved.
- For example say on a rolling FTSE market the cost is 4 points (bid-offer spread) and you'd trade an average of 2 times a day over a 6 month period
- In order to breakeven you'd have to make 125 (business days) x 4 (spread) x 2 (trades) = 1000 points
- Not many people look at it like this because they think the game of speculation and trading is all about profit, well it's not - it's as much about costs and controlling them
If you do want to day trade the markets then you've got to use something like futures or CFDs. But again my advice is to try and look at the markets over a period of weeks and months. Not as much action sure, but often easier and less stressful money.
Look in the February newsletter for more information on longer term trading using spread bets.
