Short Swing Trading - Spead Betting Page

Below are some of the questions I get asked repeatedly and at the foot of the page is a list of spread betting companies and special offers.

Will SST (and SwingTrader) signals work for spread betting?
The short answer is yes it works for spread betting – in fact I use spread betting myself. However, whenever I get this question it raises a query in my mind as to whether the person asking it really fully understands spread betting and exactly what they are trading. Here is the reason: All trading systems work on charts – either free charts available on the internet or subscriber charting packages. Bear in mind that the people using these charts around the world are using them to trade in a variety of ways. Some buy and sell shares, some use Contracts For Difference, some use futures contracts (puts & calls), some use spread betting etc. In other words you have two different aspects of trading:

These two things are quite separate. Spread betting is not a trading strategy it is simply the way that SOME traders choose to place their trade in the market and more importantly you will be using MARKET MID PRICES – usually referred to as the “Market price” for 1) above and if you are spread betting the prices you are quoted and see on the spread betting companies trading platform are NOT market mid prices they are a hybrid of the market mid and the futures price and these prices will move with the futures even if the market mid price has not moved. You will see this outside of normal trading hours. The prices quoted on a spread betting platform are referred to as the “Quote price”.

So, when you hear prices quoted on the news, Bloomberg, see prices on charts, using software such as SST SwingTrader etc you are dealing with the “Market” mid price (the price midway between the buy and sell price if you were actually buying the share) and when you look at prices on the spread betting platform you are dealing with “Quote” prices (the spread betting company's buy and sell prices) – and they are NOT the same. Sometimes the prices are quite close depending on the contract you are looking at and other times they are very different. So what you must NOT do is decide on a chart or via SST SwingTrader what price (market mid) you need to enter and then place an order on a spread betting platform to enter at that (Quote) price because the chances are you will be entering at the wrong time. With me so far?

Spread betting is a GREAT way of placing your trade in the market – there are lots of advantages but there are also some disadvantages. The main disadvantage is that you have to understand and allow for the difference between the market price and the quote price in order to trade correctly and accurately and if you do not master this aspect of spread betting then:

On my spread betting platform there are "Market" orders and "Quote" orders, what is the difference?
Reading the above explanation will tell you what the difference is but there is a bit more you need to know. Some spread betting platforms offer this facility but not all. WorldSpreads do and Finspreads withdrew the facility in 08. Market orders will trigger at the market mid price which takes out all the guesswork and calculations associated with Quote orders. So if you want to be triggered at say, 587 market mid price you set your market order to 587 and when that price is hit your trade will open at the price quoted (buy or sell) by the spread betting company at that time. Market orders will only trigger during the relevant market trading hours.

Quote orders mean you need to calculate the difference between the market mid (chart) price and the spread betting company's buy or sell price and allow for that difference when you place your order. This difference is not usually large with a Daily or Rolling contract but it can be very large on a quarterly contract (June, Sept, Dec, Mar). Quote orders will trigger at ANY TIME that your spread betting platform is open for business because the quote prices will move with the futures even if the relevant exchange is closed.

Please note: Different spread trading company orders can work in different ways. The explanation here is a general one. Check with your spread betting company, they are usually very helpful if you ask for an explanation. ALSO NOTE THAT NOT ALL SPREAD BETTING COMPANIES OFFER MARKET ORDERS.

What is the difference between the Cash and the Future Index?
If we use the FTSE 100 Index as an example, There are three things to consider:

1) The FTSE 100 market Index - as quoted on the news and seen on charts.
2) The FTSE Cash Index quoted by your spread betting company - this is a hybrid of the FTSE 100 market price and the FTSE Future price. It will be very close to the FTSE market price when the UK stock exchange is open but will follow the Future Index outside of market hours.
3) The FTSE Future Index. This is a tradable index in it's own right on the stock exchange floor and is traded around the world so there are times when it is out of step with the FTSE 100 market price and because it is traded outside of normal UK trading times it can move (sometimes by a lot) after the UK market has closed and it will take the Cash Index quote prices with it.

Most exchanges have a Cash and a Futures Index. For example The Dow Jones Industrial Average and the YM #F Index (Dow future). The DJIA index represents the movement of the top 30 US shares whereas the Futures Index does this but can also be traded in it's own right.

The Futures Index can sometimes move considerably outside of market times due to trading around the world so that when the Market opens the next day the spread price (quote price) offered is considerably different to the Market mid price. When the market opens, the market mid price will move quite quickly and will not match the quote price for a while. The quote price will also move over the first minutes of trading until they both settle down to more accurately reflect a true position relative to each other. This is why the first few minutes of trading can see big movements in prices. These situations will often be represented on a chart by a "gap". In other words the close on one day is not the same as the open the next day.

Which do I use, Quote or Market orders?
I am afraid there is no straightforward answer and it is quite complex. You really need to fully understand the difference between these two orders (see above) but I will try to simplify it as much as possible.

MARKET ORDERS - Triggered when the market mid price hits your order level. You will then have a trade opened at the QUOTE price applicable at that time. Market orders will only be triggered during trading hours for that market. Use these for simplicity on stocks particularly if the stock does not tend to gap overnight. The disadvantage is if there is price movement outside of trading hours and the movement has taken you past your trigger point. You will then be filled at the first available price when the market opens which may not be the price you were hoping for.

QUOTE ORDERS - Triggered by the spread trading company's buy or sell (quote) price . These prices are linked to the futures market so you can get triggered outside of market hours if the futures market moves sufficiently to cause the quote buy or sell price to hit your order level. This overcomes the problem above in that you get in at the correct quote price even if the market is closed. The disadvantages are that first you have to calculate the difference between the market mid price at which you want to be triggered and the quote price to make sure that you enter the trade at the correct level. Secondly because it can get you into a trade outside of market hours it is possible that the futures price causes your trade to trigger but then retraces again before the market actually opens. You can then be in a trade that according to your cash chart or SwingTrader software (based on market price) did not trigger. You can also get stopped out by the futures moving outside of market hours.

It all comes down to whether you want to be triggered by the futures (outside market hours) or the market price (in market hours only) and then you have to accept that very occasionally it could work against you whichever you choose. There is not always one clear answer but this is one of the "features" of spread trading.

If in doubt I would say to use Market orders for stocks and Quote orders on Indices.

I appreciate that this is not easy to grasp - especially if you are new to spread betting but it is essential that you fully understand this.

How do I calculate the difference between the market mid price and the quote price?
This is not difficult if you have access to real time (live) market mid prices. You need to look at the difference between the market mid price and the quote buy price if buying and the sell price if selling.

EXAMPLE: Market mid price is currently 435 and at the SAME TIME the spread is 434 - 438. If you opened a buy trade at this level you would be buying when the market price is 435 but you would actually buy at a quote price of 438 (3 points higher). Therefore if you need to open a long trade at 448 market price then you need to open 13 points higher than the current market price (448 - 435) so you set your quote order to open 13 points higher than the current quote buy price (438 + 13 = 451). If you need to set a stop at 417 (14 points lower than the current market mid price (435 - 417) then you need to set your quote sell stop 14 points lower than the current quote sell price (434 - 14 = 420)

The key is to know what the market mid price AND the quote prices are at precisely THE SAME TIME when the market is trading. I subscribe to real time prices purely for this purpose but of course it incurs expense to do that. Other ways include using Bloomberg or Teletext. Be careful if you use an internet site like Google or Yahoo Finance because so called live prices can often be 15 or more minutes delayed and that is useless for this purpose. Looking at the closing price on a chart and the closing quote prices for the same day will give an indication BUT often the spread betting company will widen the spread as soon as the market closes which will give false calculations. Also the quote price may have moved with the futures since the market closed.

Be aware also that spreads are often wider when the market first opens and will remain so until the first few trades go through for that stock on the stock exchange floor.

I got stopped by my spread betting company but the chart (or SST SwingTrader) shows I should still be in the trade - why?
Spreads widen after the market closes and can stay wider than normal (sometimes considerably) until the market opens the next day and a few trades have gone through for that stock. In addition it is possible that the quote price has moved outside of trading hours based on the Futures (see above). This means that the quote price may have hit your stop level even though the Market mid price has not triggered the stop on your chart or in SST SwingTrader. I am afraid this is a "feature" of spread betting we have to cope with.

Sometimes you can get stopped out purely due to the spread being much wider than normal even if that stock has not traded at that level. If this happens to you it is worth a call to the spread trading company to ask if the stop was correctly triggered. "Did it actually trade at that level?" is the question to ask. I have had many occasions when I have had a trade reinstated due to an abnormally wide spread when the stock didn't actually trade at that level. Sometimes it can actually be a mistake made by someone in inputting the details of a deal on the stock exchange floor.

Which Contract to use (Rolling, June, Sept etc)?
I use Rolling contracts (spreads) wherever possible. This is because they offer the smallest spread plus they are VERY close to the cash chart when the market is open although tend to follow the Futures when the market is closed. If a Rolling contract is not available you can use the quarterly or monthly contract (Sept, Dec, Mar, June) as long as there is sufficient contract time to run. I normally want at least three weeks available because most trades will not last that long.

On-line orders to open
What this means to SST traders is that you can go on line 24 hrs a day and place your orders to open for the next day or later the same day as well as move your stops.

What's more, with some platforms you can also place a conditional or "If done" order. This means that at the same time as placing your opening order you can place your Initial Stop on-line to come into force IF your opening order triggers.

This allows full and complete use of SST strategy without having to pick up a phone and ensures that you get in at exactly the price you want without watching the market. This is GREAT NEWS and it means you can place and amend orders 24 hours a day.

It is also fantastic for SST SwingTrader users whether you are at work during the day or want to be sure to catch a trade at a certain price in real time. Just place your order to open at the Prospective Trade level (after allowing for the market/spread difference as explained above.

Stop & Reverse Orders
There was a time when you could place a stop for double the stake which would reverse the trade. Example: If you were long £10 per point and wanted to stop & reverse the trade at 565 (market price) you could enter a stop level of £20 per point at 565 and if the price was hit it would close the £10 long and open a £10 short. Unfortunately too many people made mistakes and found themselves in reverse trades they didn't want. This led to complaints and most of the spread betting companies prevented people from entering a stop value for more than the live trade value.

Open a second account which will allow you to place an order in the opposite direction for the same contract. (A bit inconvenient if that's all you use it for)
If the original bet was on a rolling contract, set the stop to the correct level for the S&R and place a new order to open in the opposite direction on a different (future) contract such as the Sept, Dec etc contract. If the new order is a market order it can be placed at the same S&R market price as the stop on the rolling contract but will open at the relevant buy/sell price quoted in the future spread at that time (which is fine). You can also place a stop loss order (market) on the Future contract should it open. If you use a Quote order (perhaps because you are trading an index) you will need to allow for the "normal difference" between market and quoted price (see above).

Long and Short prospective trades on the same symbol & same day.
You can place these through an OCO (One Cancels Other) order. So whichever gets filled first, the other is cancelled automatically.

One Last Thing!
This is very important! Spread betting company systems (platforms) can have bugs and sometimes what appears to be an automated process actually has some manual intervention (stops being filled is an example). THEY DO MAKE MISTAKES! If you feel something was wrong with your trade I urge you to phone them and query it. If it correct they will explain why and if it was incorrect they will often reinstate the trade or put you back in at the price you were stopped out. I have experienced this many, many times so do not just accept what they do thinking it must be right.