The Broker Factor
What is so great is that I only need to use one broker in these troubled times. I’m referring, of course, to trading with spreadets. My broker can provide me not only with equity spreadbets but also with sector and commodity markets. This is ideal when I think that I need to be in gold for the stability, as I do not have to find a separate dealer.
I must admit that I have not used the Forex facility much yet, but I suspect it may prove useful if and when the economy crashes, and other countries seem to be a better bet. As far as flexibility goes spread trading does a great job.
You can place trades by either the telephone or online using your chosen spreadbetting companies’ Internet dealing software. If you do choose to deal online, please do take time to educate yourself on all the possibilities the dealing software has to offer. Often the software is not very user friendly but there is always help on hand either from an on-line user manual or by telephoning the help desk. Once you have mastered the many screens and personal configurations you really will be ready to place your first trades.
Whichever of the methods you decide upon, remember to read any manuals you are sent or are on-line. Many of the manuals will explain how to ask for prices, some may ask you to use some particular language when placing trades, they will all publish details of how bets are valued, margin requirements and any minimum bet size. If in doubt about anything at all – ask.
Whether dealing on-line or by telephone, for any instrument, you will always be quoted two prices, known as the Bid and Offer prices. The difference between the two prices is the Spread. The Bid price is the price at which you can sell the instrument and the Offer price the price at which you can Buy.
So for example, the Dow Jones Index may be quoted at 8805/8813 i.e. Bid 8805 and Offer 8813. If you wish to Sell or Short the market then you would do so at 8805, if you wished to Buy or go Long then 8813 is the price that you would deal.
When dealing by telephone and requesting a quote for a particular instrument, never reveal if you wish to Buy or Sell. Remember you are in control of this conversation and are not compelled to do anything, so after receiving a quote from a dealer, you may decide to either Buy, Sell or say something like “Nothing there” indicating that you do not wish to trade. The dealers are very busy and often you may feel that things are a little rushed – do not be frightened to ask the dealers to repeat themselves or make things clearer. If you place a trade and it is at the wrong level it will be your responsibility since the phone call will almost certainly be recorded. Having said that most dealers do appear genuinely keen to help to the benefit of the client.
Of course, if you deal on-line all the emotion is removed and you can trade at your pace. All the prices will be displayed on you screen and you will have probably configured the software to display your ‘favourite’ prices so you can track them more readily. Please do check though how the on-line trade is executed. Some companies have what appears to be an automated system whereby once you have clicked the send or confirm button the trade is ‘filled’ immediately. Other companies actually connect you through to a dealer and the trade is conducted in an on-line ‘chat’ manner. This may be a consideration when deciding with which company you open your account.
Every Instrument, whether an individual Share, (e.g. Microsoft), a Commodity (e.g. Gold), a Currency (e.g. Euro/Dollar) etc. has a Bid/Offer price. The spread between the Bid/Offer price will vary enormously dependent upon the volume of trades on the instrument and indeed how liquid that particular instrument is in the market place.
It is important to understand the implications of the spread when trading. Remember, once you have placed a trade you are immediately ‘down’ on the deal, if you bought the DOW at 8813 then you would be immediately 8 points away from breaking even inasmuch as you could only Sell at that point at 8805. If the price moves say 20 points against you, then you are in effect 28 points ‘down.’
Once you have initiated a trade you will immediately get a confirmation either verbally or by e-mail and very often you will have a ‘Back Office’ facility where you will be able to view your current position, the margin requirement and the balances in your account. Statements will also be sent on a regular basis confirming you positions.
We do recommend that you keep your own personal log of your trading activities; it is a useful educational tool to develop your skill. At a glance you will be able to see what are you most successful trades, where you lose money, which markets or stocks are performing best for you etc.
Here is a simple Trading Log you may wish to consider -: