Best Spread Betting Strategies: Your Guide To Spread Betting Across Markets

What are different spread betting strategies?

There are different trading strategies that can be used when spread betting. Most of these try to predict small market moves, using leverage to increase the margin.

Before you start spread betting, it’s important to understand the different spread betting strategies that are available and the risks that are attached to them.

The strategy someone decides to use normally depends on the preferences of that trader. One strategy isn’t necessarily better than any other and none of them guarantee success.

Find out more about five spread betting strategies below.

1. Trend market spread betting

Trend market spread betting involves placing bets by identifying patterns and trends in the market.

A trending market is one where the price movement is in an identifiable upward or downward trend. This would usually involve the price making “higher highs” and “lower lows” to form an upward trend, and the opposite for downward trends.

Using this, traders can speculate when a reaction might happen based on the trend itself. For example, towards the low end of the trend, or when a lower low is being formed, this could suggest an opportunity to open a long position.

This is because, according to the trend, the next reaction could be an upward movement. Otherwise, the trend has broken.

Investors could be attracted to trend market spread betting since it often allows you to follow the market’s momentum, rather than betting against it.

Some traders like to use technical indicators to inform them of when movements are beginning or ending.

Trend market spread betting can be applied to bearish or bullish markets, meaning you may be able to use this strategy regardless of what’s going on in the wider economy.

2. Reversal spread betting

Reversal trend betting involves speculating when a defined movement in one direction changes sharply.

A reversal happens when a market has reached a key price point after a defined or extended move upwards or downwards. The reversal movement itself occurs when an asset price reacts strongly to a significant level and prompts a strong movement in the opposite direction.

A reversal can be either bullish or bearish. For example, after strong movements upwards, a trader may speculate that a reversal downwards could happen. Likewise, an upwards reversal could happen in response to a downward price movement.

However, there can be “retracements” within these prolonged movements preceding a reversal. These are short-lived reversals that could be mistaken for a true reversal in price. Mistaking a retracement for a reversal pattern could lead to you entering a trade too early, as the market continues to obey its original momentum.

A useful technique could be to use key reversal “candlestick” patterns to help identify when a reversal is likely. Price movements are sometimes represented as “candles” to visualise how much the price moves in a specified amount of time. Certain configurations of these candles could indicate when the market is about to experience a reversal.

Other types of fundamental and technical analysis can help to identify these movements, such as tracking volume at key levels.

Reversal spread betting could be viewed as having greater potential risk than other strategies since it requires you to predict a shift in the market’s momentum.

For example, indicators suggesting that a market has reached its highest point could be a good time to open a short spread betting position. Opening this trade at the very start of a downward move from its peak could result in the potential for greater gains since you have a position to ride the entire move downwards.

Of course, that also means opening the trade at the wrong time exposes you to greater losses.

3. Breakout spread betting

When a market is range-bound, the range’s top and bottom levels act as key price points or “support” and “resistance” levels – that is, when an asset price is expected to appreciate to its upper level. Once a market reaches either of these levels, traders may start to consider taking a breakout trade.

This is where the price breaks above or below its previously defined range. To make the most of these breakout movements, traders will often enter as early as possible at key range levels to maximise returns.

You could use indicators to inform when a breakout is likely to happen, including volume indicators to detect increased volume at key price points. This could prevent you from entering a trade before a range is ready to be broken.

Staggering entry positions is another technique that could be used by people seeking to take advantage of breakout trading strategies. You could use limit orders to stagger your entries around the key price point at the top or bottom of a range, rather than buying at market price. These automatically open a position once the asset hits a predetermined price.

It has the potential to prevent you from missing a position by committing to an entry point at the wrong price, spreading your entry over a greater price range.

However, you should bear in mind that judging an entry point is difficult and could result in your trade hitting a stop-loss or your position being liquidated.

4. Consolidating market spread betting

Consolidating market spread betting is a way to trade to the price movement of an asset between two, longstanding levels – one high and one lower.

The price “bounces” between two levels and bettors using this strategy aim to trade the movement, up or down, as it does this.

A consolidating market has consistent movement between support and resistance levels. For example, along the low levels of consolidation, an asset price is expected to appreciate to its upper level – known as the “resistance”.

Some traders find it useful to trade the price movements within the consolidating range, with this method defining the consolidating market strategy. It could also provide a visible stop loss point when the consolidating range is broken.

For example, the price resting on the low of a consolidating range that has consistently reacted positively from this support could be a good position to open a long spread betting position.

Since these respective movements are relatively small, leverage is commonly used to scalp between the range. Leverage is a way to increase the size of your position without using additional funds. You can read more about leverage later in my guide.

Indicators could provide a way to help detect when to exit your trade, which may be when the price approaches the highs or lows of the range.

5. News-based spread betting

News-based spread betting is a strategy that uses market-related news or events to inform a trading position.

This strategy uses news stories and economic events to inform traders of specific market moves. Normally, investors target global markets with this technique because of the speed at which the news travels, as well as the news being more likely to affect a greater number of shareholders.

The reason for this is that the more investors it affects, the more likely it is to drive a market in a certain direction. More people selling could drop prices faster than fewer people selling, for example.

News-based spread bettors seek news stories and economic events that could sway financial markets. They attempt to react to the news as quickly as possible in order to maximise potential gains.

A negative story about a certain publicly-listed company could see its share price drop as a result. Likewise, a story with positive news about a financial market could make prices rise.

Hypothetically, if it was announced that Coca-Cola had life-extending properties, this would be seen as beneficial to the Coca-Cola brand by investors. As a result, the price of its shares would likely rise. A trader would aim to enter a long trade with Coca-Cola shares as soon as possible post-release of the news and hope for appreciation in its share price.

Similarly, economic or financial events could impact prices just as much as news stories. Events such as changes to financial policy, committee meetings, or the release of a company’s earnings reports could all affect a market’s price.

However, this technique could make it hard to identify when to take profit or cut losses. This is because the strategy doesn’t involve technical analysis, so it could be hard to know when the movement has finished.

What is spread betting?

Spread betting is a way of trading without ever owning the underlying asset. Instead, traders speculate on the future price movements of a market. This way of investing often uses technical analysis to help traders discern when to open or close a specific trade.

The process of spread betting involves placing a certain amount of money per point of movement in a certain direction. This movement is then multiplied according to any leverage if you’ve chosen any with your broker.

Trading spread bets is usually done over short-term periods, often because of the way that leverage magnifies the price movements.

Leverage multiplies price movements – both gains and losses are magnified according to your margin. It’s important to note before you start spread betting that most retail investor accounts lose money when trading this way.

This makes it important to cut losses or take profits before the market moves the other way. Spread betting typically comes with additional volatility, as price movements can change the profitability of a trade very quickly.

There are different strategies for spread betting and some may suit certain traders more than others. There is no “correct” way to spread bet, as it’s simply down to the preferences and risk tolerance of the trader.

Because of the high risk associated with leveraged trading methods, a majority of traders lose money when spread betting, and there is a high risk of losing money rapidly.

Make sure you fully understand these risks before you start trading.

How do you make money with spread bets?

To make money spread betting, traders will need to correctly speculate on the direction of market moves.

When spread betting, it’s important to make a trading strategy since there are different ways to invest.

For example, you could enter either long or short spread betting positions. To make money with a long position, you speculate that the price of the asset will increase. Conversely, opening a short position would mean you need the price of an asset to decrease in order to make money.

Trading success is never guaranteed, and you should take any action you can to protect your investments.

For example, you could conduct technical analysis and use indicators to try and inform yourself of the market’s direction. Likewise, using stop losses and limit entries could further mitigate your risk.

Leverage and spread betting

Spread betting is a leveraged trading method, which means you can trade with more money than you have deposited in your account. As a result of this, any price movements are multiplied.

So, for example, if you had access to leverage of 5:1, that means you can trade £500 while just putting in £100 of your own money upfront.

While this means any gains you make will be magnified by the same amount, this is also where most of the risk comes from when spread betting, as you could lose more than the amount you opened the position with if your bet is incorrect.

Some brokers will offer greater leverage ratios than others, although firms that are authorised and regulated by the Financial Conduct Authority (FCA) are required to limit leverage to between 2:1 and 30:1 for retail investors.

FCA-regulated firms are also required to offer “negative balance protection”, meaning you can only lose as much money as you have available in your account when trading with leverage.

How is spread betting different from CFDs?

Spread betting and contracts for difference (CFDs) are both ways to trade an asset without actually owning the asset you are speculating on, although there are some key differences.

With spread betting, your gains are determined by the price of movements of the underlying asset.

Meanwhile, with CFDs, you open a contract with your broker in which you receive the difference in the value of an asset from the start to the close of the contract.

They both involve great risk and you should understand that most people lose money using them. Risk management tools could help you mitigate your likelihood of losing money.

Also consider: CFD Trading Platform for Beginners

Which is the best spread betting strategy?

The methodologies of each spread betting strategy differ greatly, so it would make little sense to name one better than the others.

It’s useful to consider how well a certain strategy suits your investing and trading style. For example, novice traders may be better suited to a simpler spread betting method, while more experienced traders could have the ability to use more complex strategies.

For beginner traders, a consolidating market strategy could be easier to understand. This is because the range that the price has traded within could act as a clear, visual way to determine when your trading plan has been invalidated.

For example, if you open a short position at the top of a range expecting it to go down towards the bottom of the range, but the price breaks upwards out of the range, this could indicate that the trend is over and your bet was wrong. Hence, this could be a good place to exit your trade before any losses increase.

Since you may be scalping the price action within the range, the price breaking out of this range could be enough to prove that the trade isn’t likely to succeed. With other methods mentioned, this point can be less clear and could lead to heavier losses.

Meanwhile, traders with more experience might be better suited to a strategy that requires more knowledge of the markets and trading in general.

Breakout spread betting could suit more experienced investors since levels of invalidation may not be as easy to decipher. Since entering the trade as early as possible – once a breakout seems probable – could maximise returns, the additional technical analysis required to discern this may be too much to understand for beginners to use effectively.

Despite this, no method should be considered safe. All spread betting strategies carry great risk, and you should mitigate this as much as possible by taking responsible positions, managing your risk, using stop losses, and more.

Pros and Cons of spread betting

Pros

• Ability to use leverage to open a position that is bigger than your deposit
• Trade over shorter time frames
• Trade a variety of assets without needing to own them
• Profits are tax-free
• Trade the markets at any time
• Access to a wide range of financial markets
• Have the option to open long or short positions.

Cons

• Involves a higher level of risk than other investing and losses can occur very quickly
• You could be charged trading fees on each position you take
• Requires you to correctly predict precise market movements
• It’s possible to lose more than your original position
• Price action in spread betting markets can be volatile
• You may have to learn different strategies and their features.

Best Spread Betting Strategies FAQs

Please note:

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Spread betting and CFDs are complex instruments, and more than half of retail investor accounts lose money when trading CFDs. Please make sure that you know these risks before you start trading and that you’re aware there’s a high chance of losing money rapidly on your investment.

For more reviews, tips, and information, sign up to our weekly newsletter.