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Can spread bets be used to longer term trade the markets?

Spreadbets for Long Term Speculation?
Written by David

Spread bets are essentially for short-term speculation. You spot an asset that you think is going to move decisively in the near future and seize that opportunity with one of these instruments. If all goes to plan, you’ll generally be in and out with a few days or a couple of weeks. And some positions might last much less than a day.

However, although spread betting is most closely related with short-term trades and day trading, this doesn’t mean that you cannot use spread bets to take longer-term positions lasting several weeks or even months – and in fact in a number of cases this is a better strategy and frequently a range-trading strategy can sometimes remain valid for months. Another trading style referred to as position trading relies on identifying trends or spotting valuation discrepancies. The obvious advantage of this approach is that it gives you more time for the market to move in your predicted direction. Given the longer term trade timescales it is prudent to look at the fundamentals when looking to position trade.

For myself, I have been learning and spread betting for a number of years now and I have tried many strategies (using stops, not using stops, breakouts, day trading, the whole lot…etc). I’d say one of the better systems that works for me is longer term trading based on a strict set of very simple rules. When I am holding for the long term I tend to stick to my planned timeframes. When I am trading short term I tend to be flexible.

You see, I’d rather take a quick loss if things aren’t going my way then hang around and nurse a big loss. My exit points help me to plan my Risk:Reward ratio and my stop loss is there to avoid getting taken out on a silly spike. Of course the question is when is a trade not going my way and when is it just market noise.

‘My attitude is – why take too much risk on any one trade? There will always be another trade round the corner. My short term trades tend to be spreadbets too so transaction costs aren’t really an issue. I quite often exit by degrees too- often in thirds. That way if I am being ultra cautious and the market swings back my way, the initial loss taken by coming out of the first third is covered by the subsequent profit of the remaining two thirds.’

Sometimes I buy shares on IG Index and keep for the long term. In fact a few of the bets I open are for an indeterminate period. I run them till they stop being good… Never had a problem with them. If you feel nervous about it I would open an account and have a play with a small bet expiring September, the minimum bet (1) for IG on Encore is the equivalent of 100 shares and 10,000 is certainly no problem. The minimum deposit needed is 25% of the value of the shares but I would put in 60% to have reduce the chance of getting a margin call. You can also set the bets to roll over automatically every quarter which is very cheap.

But over what intended timeframe does it become advisable to open a spreadbet a quarterly instead of these run-till-closed dailies?

If you’re only running them for a week or so I would think it would always be beneficial to open a daily. The majority (almost all) my bets are opened as quarterlies – even if only running them a few days – even though I pay a greater spread that way. I find it more convenient to use quarterlies unless i really am only going for a quick trade which is rare. But you never know how quickly you’re going to have to close it and it can cost a bit more to close a quarterly in short time.

At the end of the day whatever the cost its just another factor in the overall outcome. I’ve heard of traders who have daily bets that they kept running for over a year – if the trade keeps making more profit the vehicle is largely irrelevant, and is only a function of the original decision!

You can keep your spread betting positions as long as you wish – they will continue to roll over until you stop them, so by holding a spread betting position for a long time mimics the act of buying stock from a broker.

About the author


I first cut my teeth in the Square Mile in the winter of 2002. I was young, fresh-faced and straight out of university; keen but maybe a little naïve about the way the investment world really worked… A few years ago I discover a whole new world of opportunity: spread betting on the financial markets.

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