As i write this, I’m nursing a bit of a sore head and an empty wallet. In the last 30 days I’ve lost almost £30, 000 spread gambling on relating to an hour a day five days a week. So i managed to blow around £1, 500 an hour. That’s really quite a chunk of cash. Actually, it’s not quite as bad as it looks. Fortunately, I was gambling on using a few spread-betting companies’ demo sites. These are simulations of their live gambling on sites that allow you to practice before you start gambling on with a real income. Allbet I realise that we am no financial genius otherwise I would have been rich way back when. However, the fact that I managed to waste so much money so quickly does pose the question – if spread gambling on seems really easy, why do so many people get completely damaged extremely quickly?
We’re increasingly seeing advertising for spread gambling on in investing and money management publications. In the one I become a member of, about different spread gambling on companies take full-page colour ads a week, outnumbering any other type of advertising. Spread gambling on ads are already common in the business sections of many weekend newspapers and will probably soon start to can be found in the personal finance sections. Spread gambling on could appear deceptively attractive to many savers. After all, money in a bank, shares or unit trusts will at best give us about a miserable five per cent a year before tax. Yet a reasonable run on spread gambling on can easily let you pocket ten per cent a week – 600 per cent a year – completely and gloriously tax-free. So spread gambling on can let you earn in just one year what it would take a hundred years or more to achieve with most other investments.
Spread betters gamble on price movements of anything from individual shares, stock markets and commodities to whole markets like the FTSE, Dax or S&P. It is called spread gambling on because the company providing the service makes most of their money by putting an additional spread around the price at which something is being bought or sold.
Spread gambling on appears to have many advantages compared to traditional investing:
You don’t have to buy anything – It allows you to bet on price movements and never having to buy the underlying assets – shares, commodities or foreign exchange.
It’s tax-free – When you buy or sell shares, get paid payouts or receive interest from a bank you will have to pay taxes like stamps duty, capital gains and income tax. Unless spread gambling on is your full-time job and only revenue stream, there are no taxes to be paid as it’s considered to be gaming.
You can go long or short – When you spread bet you can gain just as much whether prices rise or fall, providing you guess the direction correctly. With most other investments, you need the price to go up before you make a profit.
You can bet on a rise or fall at the same time – If the FTSE, for example, is trading at 5551-5552, you can place two proposition wagers, one that it will rise and one that it will fall. These only get triggered when the FTSE actually moves. So if it starts mounting, your bet that it will rise gets triggered. Similarly if it drops, only your bet that it will fall is triggered. So it can seem that, come rain or shine, you’ll probably win.
Huge leverage – If you bet say £50 a pip (a pip is usually the minimum price movement you can bet on), you can easily win about times your original bet if the price moves in the right direction. On a really good bet, you can win much much more.
You can wait for the breakout – Prices on many shares, stock markets, commodities and other things people bet on tend to experience periods of stability accompanied by bursts of movement up or down, what spread-betters call ‘the breakout’. You can place a bet that is only activated when the breakout comes.
Loss limits – You can put conditions in your bet that prevent your losses exceeding beyond your chosen level should your bet happen to be wrong.
You can adjust mid-flight – With most proposition wagers, such as with horse racing or on roulette, once the race has started or the croupier has called ‘no more bets’ you have to wait helplessly for the cause see if you’ve won or not. With spread gambling on you can choose to close your bet at any time. So if you’re ahead, you can take your success; if you’re behind you can either cut your losses or wait in the hope that things will change and you’ll be up again.
Given all these properties of spread gambling on, it should be pretty easy to make a fair bit of money without too much effort. Anxieties.
Industry estimates suggest that around eighty per cent of spread-betters lose most or their money and close their accounts within three months of starting. There seem to be another eight per cent or so who make reasonable amounts of money on a regular basis and there are around two per cent of spread-betters who make fortunes. I’ve been to some presentations run by spread gambling on companies and at one of these the salesman let slip that over 70 per cent of his customers lost money. Even many professionals lose on about six proposition wagers from every ten. But by controlling their losses and maximising their returns when they win, they can increase their wealth.
Why it can go badly wrong
There seem to be several reasons why spread gambling on is so able to dramatically demolishing most practitioners’ wealth:
The companies want you to lose – When you first open a demo or real account, you will get several phone calls from extremely friendly and helpful young men and women at the spread-betting company asking if there’s anything they can do to assist you to progress. This is customer service at its very best. A lot of people contacting you will parrot the line that they just want to help and that they’re happy if you’re successful as their company only makes money from the spread. Some will reassure you that they want you to win as the more you win, the more you might bet and the more the spread-betting company will earn. This may make you feel good, encourage you that the company is open, honest, trustworthy and supportive and encourage you to use them for your gambling on. But it’s also a lie. It’s true that the company might make a lot of its money from the spread. However, with many of your proposition wagers, you’re gambling on contrary to the company and in addition they hope you lose, big time. In fact, over the past month I’ve seen several companies change the conditions on their sites to make it more inclined that people using them will lose. So, lesson one – spread gambling on companies are not your friends. The more you lose the more they win. It’s that simple.
It’s difficult to break even – If you bet say £50 a pip and the price does go the way you want, the spread gambling on company takes the first £50 you win. So the price has to move two pips in the right direction for you to win your £50 back and three pips for you to emerge with £100, doubling your money. However if the price moves three pips in the wrong direction, you lose your original bet plus £50 a pip, giving a total loss of £200, a loss of four times your original bet.
Losses can be massive – With most gaming, you can only lose what you put down on a horse, blackjack or roulette. With spread gambling on you can quickly say goodbye to much more than you can guess. I forgot to put a stop loss on one bet and managed to lose over £800 with just one £50 bet. Because your bet is leveraged, you can make both fabulous gains and excruciatingly painful losses. Many times it’s the latter. The miscroscopic size of many proposition wagers, often £5 or £10 a pip can lull betters into a false sense of security. It’s only when the losses go five to ten times the original bet that they realise the risk they have taken.
“The spread gambling on leverage means that you can get rich which is a wonderfully appealing idea, but it also means you can get poor which most people ignore. “
You can waste thousands on courses and systems – At one free spread-betting seminar I attended we were more than strongly encouraged to join up for a two-day weekend course teaching us how to spread bet successfully. This would normally cost (we were told) £6, 995, but there was a special offer for the first five people to join up of only £1, 997. There are many such courses and also ” teachers ” offering to sell you their special spread-betting systems, guides, webinars and all sorts of other advice. With so many supposed experts apparently generating an income teaching others how to spread bet, the converter should have a lot of takers. But There is that all you need to know and more is available free on the internet. As one specialist said, ‘Don’t bother wasting your money on ‘Guru’ books published by so-called experts. Those books are crap and not worth the paper they are printed on. Nobody sells a secret trading technique if they are really successful. The only reason this business are writing books is because they didn’t make it as traders’.
It’s the bobbing about that beats you – We often hear on the news that the price of gold has risen by a few dollars an ounce or the FTSE has fallen by a hundred and thirty points or that the pound has risen by two cents contrary to the dollar. These reports make price changes on financial instruments sound like smooth movements either up or down. However, the prices of shares, stock markets, commodities and stock markets hardly ever move around in straight lines. They jump about every few seconds. So, if the FTSE are at 5540 and you correctly bet £50 a pip that it should go up to 5545 you do not necessarily win £200. In between going from 5540 to 5545, it might drop down a couple of times to say 5535 or lower. If you have a stop loss on at 5536 or 5535 to avoid losing excess amount, your stop loss will get started and you’ll lose £250 or £300 even if the index did subsequently move upwards as you predicted. I’ve placed over a hundred proposition wagers to test whether I won when my proposition wagers were right. On about 70 per cent I lost in spite of being right because the fluctuations triggered the stop losses even though the index did actually move from where it was to where I predicted it would go. This creates a rather odd situation where stop losses can unfortunately make you lose even when you should be winning. Yet if you don’t put stop losses on and things go in the wrong direction, your losses can annihilate you.
It attracts losers – At the spread gambling on seminars I’ve attended, I’ve been shocked by the number of low-paid workers – waiters, porters, kitchen staff, healthcare assistants and impoverished, would-be writers like myself – who decide to have a go at spread gambling on as they believe that, apart from winning the Lottery, it may be the only realistic way they have of making hardly any money. These people will be gambling on with their meagre life savings against extremely sophisticated financial services insiders with vast knowledge, many years experience and extraordinarily deep pockets. It’s not difficult to guess who is going to win.
Sucker or smartie?
Spread gambling on is a ‘zero sum game’. Unlike depositing our money in a bank so it can be lent to businesses or house-buyers, spread gambling on doesn’t create wealth. It just redistributes money from the suckers to the smart. When contemplating whether to try your hand at spread gambling on, you need to work out whether you are likely to be in the eighty per cent who end up as suckers or the ten per cent who make money by being smart. I found it interesting that not a single one of the amiable young men and women from spread-betting companies that we speech to actually did any spread gambling on themselves. By the way, when i did eventually open a live spread gambling on account and managed to win about £100 a day for ten days, the spread gambling on company started preventing me getting out of losing proposition wagers because they claimed I was “betting unfairly”. However, if you do manage to spread bet successfully, please drop me an email, I’d love to find out how to do it.