Spread Widening Bet
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Spread Widening Bet
Shobhit Seth is a freelance writer and an expert on commodities, stocks, alternative investments, cryptocurrency, as well as market and company news. In addition to being a derivatives trader and consultant, Shobhit has over 17 years of experience as a product manager and is the owner of FuturesOptionsETC.com. He received his master's degree in financial management from the Netherlands and his Bachelor of Technology degree from India.
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Forex Leverage: A Double-Edged Sword
10 Ways to Avoid Losing Money in Forex
Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security.
Guerrilla trading is a short-term trading technique that aims to generate small, quick profits while taking on very little risk per trade.
Investing is allocating resources, usually money, with the expectation of earning an income or profit. Learn how to get started investing with our guide.
An outright option is an option that is bought or sold individually and is not part of a multi-leg options trade.
In sports betting, a parlay bet is a bet made up of two or more individual wagers. Combining bets makes them harder to win but increases their payout.
The HSX or Hollywood Stock Exchange is an online prediction market where people place virtual bets on the performance of the entertainment industry.
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Spread betting can yield high profits if the bets are placed correctly. Most spread betting traders are successful only after creating a systematic trading plan following years of experience. Only a small percentage succeed and the majority fail. We look at the important factors for success and profitability for spread betting.
NOTE: Although popular in Europe and particularly in the United Kingdom, spread betting is illegal in the United States. The Commodity Futures Trading Commission prohibits the sale of foreign security futures products to retail investors based in the U.S. 1
Assume a stock is trading at 300 pence. But due to its illiquid nature, the bid-ask spread is wide at 290–310 pence. Because of the wide spread, a buyer who pays 310 pence for their position doesn't make a profit even if the stock jumps 3.33% to 310 pence.
Now take a similarly priced but highly liquid stock. Its spread is tighter at 298–302 pence. A buyer who pays 302 pence for the position will profit after a smaller move. Betting on instruments with tight spreads improves the potential for profits significantly.
How much total trading capital is available? How much money will be used per spread bet? How frequently will spread bets be placed? Answers to such questions help create an efficient trading plan.
Having £50,000 and blowing £25,000 on a first bet will leave you at a significant loss. With the remaining £25,000, you need to gain 100% profit just to recover your lost money. The profitability of spread betting can be improved substantially when one enters with a clearly defined spread betting plan, which is based on total capital, bet amount per sequential bet, and frequency of placing the bets.
Structuring bets properly can allow one to be profitable in the long run, even if your losing trades outnumber your winning trades. Consider Ami, who on average wins 4 of every 5 bets, while Ben only wins 1 of every 5 bets. Whose trades are more profitable?
On the surface, the answer would seem to be Ami, but it depends on bet sizing and the risk-reward scenario.
The key is placing bets in the right size given the risk versus potential reward. Losing multiple small bets for the chance of a single big win can pay off if trades are structured properly.
A UK-based spread betting firm like CityIndex offers spread betting across 45 global markets, with asset classes including stocks, indices, forex, commodities, metals, bonds, options, interest rates, and sectors.
Most novices tend to simultaneously play around in multiple markets and securities without a clear understanding. One should build expertise in a few asset classes. Attempting to generalize will lead to mounting losses.
Most spread betting firms offer a free practice demo account. Learn the tricks of the trade, backtest the structured betting plan, and practice it multiple times before jumping in with real money. Markets will remain forever, but real money lost during an initial phase of ignorant and inexperienced attempts will be difficult to recover.
Once comfortable with virtual returns, enter with real money. Start small and then expand as the betting profits increase.
Spread betting is available on leverage , which magnifies profit (and loss) exposure despite limited capital. With £100, a 10% leverage margin can allow one to make bets for up to £1,000. Leverage is a double-edged sword. It magnifies profits when a bet works favorably, but also the losses if it goes wrong.
Successful spread bettors use leverage efficiently with tight controls, while novices get tempted to take large positions and end up blowing their accounts. Controlling the leverage usage, based on a realistic availability of the capital amount, is necessary for success in spread betting.
While devising a trading plan, or while comparing performance from different trading activities, it is important to factor in the tax benefits available in spread betting. This is a very significant factor in making genuine profits.
Spread betting, though illegal in the U.S., is very popular in the U.K. and European countries. It offers potential for high profits, but most traders when they start due to inexperience. Building sufficient knowledge, selecting the right instruments, and practicing and backtesting a trading system can assist in generating profits from spread betting.
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darkhorse70
Start date
26 April 2016
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betting
spreads
trading
widening of spreads
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Long story short, does any one know how you could bet on a widening in a spread between to inversely related markets. I.e treasuries and equities?
I heard some thing about options but not sure.
I only ask because recently, the treasuries were way to close to coming close to their recent highs while equities were at their near all time highs. It felt like the pricing was way out of whack. I couldnt spread the bet because they are inversely correlated which meant they either possibly make money or possibly both lose money. Hence why i thought, making a bet that the gap between them would widen.
Anyway, as the initial question asks, any thought?
Thanks
CanOz
Home runs feel good, but base hits pay bills!
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Long story short, does any one know how you could bet on a widening in a spread between to inversely related markets. I.e treasuries and equities?
I heard some thing about options but not sure.
I only ask because recently, the treasuries were way to close to coming close to their recent highs while equities were at their near all time highs. It felt like the pricing was way out of whack. I couldnt spread the bet because they are inversely correlated which meant they either possibly make money or possibly both lose money. Hence why i thought, making a bet that the gap between them would widen.
Anyway, as the initial question asks, any thought?
Thanks
Joined
20 August 2013
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I get what you're saying Can.
I guess in the longer term perspective the correlation is really way off, most likely to QE and the rest of that stuff?
I highlighted some spots on the chart and you're right about the flight to safety stuff.
It just felt like the last top on the bond/treasuries shouldn't not have been there, especially based on the performance of the Equities. In my mental context, I could argue that the ES could have been topping out and a pullback in the ES could have seen bonds etc go even further up but since its been showing signs of possible acceptance (the es), the bonds started selling off.
My main point was, I wanted to make a wager on the fact that from that last area, before the the bonds just sold off a week or more ago, I felt that there was going to be a widening in the price between both markets.
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Read this Dark, posts by Bone.
Okay, so im not sure if im allowed to post links to other forum. Im not promoting other forums, simply helping dark. If thats against the forum policy, more than happy for mods to delete the link.
http://www.elitetrader.com/et/index.php?threads/futures-spread-trading.223378/
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Hey History, thanks for the resource.
I went through some of the pages. Will have to read the rest but bones seems to have heaps of interesting ideas. Most of the stuff they talk about flies over my head though.
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Is there a way to bet on CDS spreads widening as a retail investor?
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I think there's going to be a broad market widening in credit spreads, particularly in high yield debt. The wrinkle in this is that these markets are only really accessible to accredited investors, and I'm not one of them. Is there any way for me to make an equivalent trade as a retail investor?
In general, is there a way for me to go short something like BUHY:IND ?
You can get an ~ok proxy for overall market credit risk premium by trading the TED spread (treasuries vs eurodollar curve).
Any idea how well TED spreads reflects "real" risk vs sovereign risk? Seems like treasuries and eurodollar futures might track very similarly these days given the implicit or explicit backing of many states.
Or you can get on either side of the actual high yield index via HYG...
Yes, there are a couple of ways to get what you want pretty directly:
(Long) High Yield ETFs , some of which are easy enough to borrow to short and/or have reasonable well-traded options on them
HYG is the biggest here -- $16B mkt cap, trades about $1B worth a day. Probably best option chain of all of these. It follows Markit iBoxx Liquid HY Index, which underlies the main CDX product for this.
JNK is the next biggest. $12B mkt cap, trades about $330M/day. Has options, too -- the near-money strikes of the January ones are okay, but anything other than that is kinda pushing it. Follows Barclays HY Very Liquid Index.
ANGL is my favorite for long exposure but is comparatively tiny and follows a specailized subset of the HY market -- namely "fallen angels", HY bonds that were investment-grade when they were issued and have been downgraded. $330M mkt cap; ~$4M/day in volume. Technically has options listed but I don't think they ever trade. My shares do occasionally get lent out, though, so it must be possible to borrow and short it.
SJB goes for -1x the daily performance of the Markit iBoxx Liquid HY Index (so, approximately inverse of HYG). Exp Ratio .95%. Almost as liquid as ANGL but has options that trade a lot more because you could sort of hedge them with the plentiful HYG options (still wouldn't touch them, I don't think)
HYDD is -2x the (daily) Barclays HY Very Liquid Index. With a $5m market cap and about ~$20k/d in average volume, this one trades on appointment. No options, obviously.
So if I wanted to bet on spreads widening I'd...actually, I'd just sell some of my ANGL because I'm generally making the opposite bet. But if I weren't starting out with that, I'd probably buy puts on either HYG or JNK or buy SJB outright. Or maybe short HYG, JNK, or ANGL.
If you want a pure play on the spreads, you'll have to hedge out the sovereign rate risk elsewhere. Good news is that's pretty easy, relatively speaking.
Thanks. This is a pretty comprehensive list. I think this is more practical than trying to mimic the trade with other derivatives
Just short the etf. Trading CDS itself requires that you have an ISDA on file with the large banks, who won't execute such a document without evidence that you have plenty of capital. It's an institutional-only product. Luckily for you, the ETF is open to anyone.
trade HYG its the iboxx index that tracks the cdx.hy
really accessible to accredited investors
not really, you can be accredited and still not have anywhere close to the capital requirements to trade single name CDS. just an fyi btw, being accredited is a low bar.
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