As I write this, I’m nursing a bit of a sore head and an empty wallet. In the last four weeks I’ve lost almost £30,000 spread kuybet for about 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 betting using a few spread-betting companies’ demo sites. These are simulations of their live betting sites that allow you to practice before you start betting with real money.
I realise that I am no financial genius otherwise I would have been rich long ago. However, the fact that I managed to squander so much money so quickly does pose the question – if spread betting seems so easy, why do so many people get completely wiped out extremely quickly?
We’re increasingly seeing advertising for spread betting in investing and money management publications. In the one I subscribe to, four or five different spread betting companies take full-page colour ads each week, outnumbering any other type of advertising. Spread betting ads are already common in the business sections of many weekend newspapers and will probably soon start to appear in the personal finance sections.
Spread betting 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 betting can easily let you pocket ten per cent a week – five hundred per cent a year – completely and gloriously tax-free. So spread betting 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, currencies and commodities to whole markets like the FTSE, Dax or S&P. It is called spread betting 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.
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 get going. This is customer service at its very best. Most of the 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’re likely to bet and the more the spread-betting company will earn. This may make you feel good, convince you that the company is open, honest, trustworthy and supportive and encourage you to use them for your betting. 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 bets, you’re betting against the company and so they hope you lose, big time. In fact, during the last month I’ve seen several companies change the conditions on their sites to make it more likely that people using them will lose. So, lesson one – spread betting companies are not your friends. The more you lose the more they win. It’s that simple. If you bet say £50 a pip and the price does go the way you want, the spread betting 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. But 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. With most gambling, you can only lose what you put down on a horse, blackjack or roulette.
With spread betting you can quickly say goodbye to much more than you wager. 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. Too often it’s the latter. The small size of many bets, 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.