For anyone hoping to dabble into the world of financial trading, it can be difficult to choose which type of investment is best. The difficult economic outlook can also make it harder to decide what is the most likely to provide the best returns. But in times of uncertainty, spreadbetting could make an ideal investment, as it does not need a strong upward trend in order to secure a profit.

Spread betting is a phrase many people will have heard of but most will not realise what a complicated endeavour it is. Unlike a fixed odds bet at the local bookies, a spread bet is a complicated financial investment where it is possible to lose more than your initial deposit, but conversely offers the chance of significant gains.

Although there are a number of mainstream markets which it is possible to place a spread bet on, such as sports, the majority of traders focus on the financial world. Brokers offering the facility to spread bet usually provide a wide range of markets including indices, individual shares, sectors, commodities, metals and currencies to name but a few. It is also possible to either opt for a short-term daily spread bet or to have one which rolls over to the next day.

To maximise profits and minimise the risk of unnecessarily exposing yourself to the risk of losing more than your initial deposit, experts suggest refraining from trading unless you fully understand the product. To be successful in spread betting involves not only spotting when the market is likely to move, but also the direction it is likely to go in.

There are a large number of online brokers who offer spread betting and getting started is a simple process. The vast majority provide the facility to register online and with an account taking only a few minutes to create and go live, it is possible to be ready to trade within a very short space of time. Nevertheless it is essential to have a degree of restraint and make sure you are ready to trade before getting started. Taking the time to familiarise yourself with the platform is important and having the patience to wait for the right opportunity to present itself is absolutely vital. Getting impatient and plunging in is unlikely to end in success.

But before you even pick a broker, you need to have a think about how and where you will spread bet. The majority of people will want to trade from their home PC so a web-based platform which is easy to navigate and can be customised is a good start. However, having the facility to keep tabs on your account when you are out and about is a big advantage and some brokers offer different types of access.

For investors who are keen to keep a close eye on their account whilst away from home, the City Index spread betting app may be something to take a look at. City Index include both 24 hour trading and live price feeds which make managing your spread bets much easier, even if you need to keep an eye on market movements when away from your PC.

To become profitable in spread betting takes a lot of research and patience and the ability to resist the temptation to go overboard. But whether you use the City Index spread betting app, or opt for a home-based approach, with the right attitude and the willingness to learn, the potential for profit can be great.

Spread betting has slowly risen in popularity amongst the general public and even those who never venture near a bookies will most likely have heard of it. However, despite its spread into the mainstream very few people know how to spread bet or realise that it is very different to fixed odds betting.

In a tough economic climate, spread betting offers investors the chance to continue to make money even when it is difficult to profit from other types of trading. But although it may sound tempting, caution must be exercised because unlike traditional betting, it is possible to lose a lot more than the original stake.

Spread betting is now widespread across both financial and mainstream markets, allowing investors to choose between placing a trade on sporting events such as the outcome of a football match or whether the FTSE 100 will finish lower than it started. Even though the type of spread bet chosen may depend on the individual’s particular knowledge, the underlying principles are the same. A lot of money can be won; but with the potential for great losses, it is a good idea to keep on top of an open wager to ensure it is closed down if it looks as if it is heading south.

Understanding how to spread bet properly is key before venturing into the market and especially being aware of how the potential gains and losses are calculated is imperative. With fixed odds betting, once a stake is placed the two potential outcomes are already known - how much could be won or lost is set. With spread betting the stake is bet against each point of movement meaning that until the wager is closed, the amount which could be won or lost is uncertain. Whilst this means the returns could be infinitely higher, it also offers a much greater risk of incurring a large debt for a losing bet.

Spread betting is increasingly common in the arena of financial services and stocks and shares and other markets are a popular choice for a wager to be placed. It is possible to either wager on an individual stock or currency, or even on an entire index. Popular types of bet include a range which an index will end in or even whether it will close up or down on the day.

One of the advantages of a spread bet on the financial markets is that it is feasible to have a mixture of both short and long term bets. As well as placing a spread bet about the performance of an index on a given day, it is also possible to bet upon its performance over a period of time. Regardless of which type of spread bet is placed, it is essential that any money is disposable income as there are no guarantees over potential return.

Spread betters are treated very differently by the tax man and this is one of the biggest advantages this form of investing holds over all others. Any gains may be enjoyed completely free of both Stamp duty as well as Capital Gains Tax, a marked contrast to other forms of profit made from shares. In addition, as a spread bet is only ever a wager about what might happen, there is no actual share ownership which simplifies the position.

Spread betting is a form of investment which is considered as a real option for those hoping to earn a substantial return from their money. A very different type of risk from a punt on the Grand National at the local bookies, a spread bet requires robust finances and a well thought out strategy before embarking. Keeping fingers crossed for a bit of luck is likely to result in hefty financial losses which could put an end to the venture for good.

They say variety is the spice of life and for many traders, having a diverse portfolio is essential. Contracts for difference, often abbreviated to cfd trading, offer a different aspect for those looking to make profits from the market in challenging economic conditions. Far simpler than outright share ownership, contracts for difference allow gains to be made without the risks of a large capital outlay.

Essential cfd trading is an agreement between two people to settle up the difference in price multiplied by the number of shares in the deal at the point the contract is closed. Although cfd trading is carried out in the same way as traditional share dealing, with the type and number of shares entirely up to the individual, there are a number of significant differences which set it apart.

Because the shares are never actually owned outright, it is not necessary to pay the full price when placing the trade. Contracts for difference are traded on margin which means that only around 10% of the total cost of purchasing the shares needs to be paid. This allows traders to maximise the returns available on share dealing even if there is not a lot of capital. However, it also means that heavy losses can be incurred if the market moves in the wrong direction.

Commission is payable on both full share ownership as well as cfd trading but no stamp duty is imposed on the latter, saving around 0.5%. However, whilst there are no limitations on holding positions in either on a long term basis, it can become unprofitable for cfds as finance charges accrue overnight, wiping out potential profits if left for long enough.

Despite the charges, cfds have many benefits compared to full share ownership but for many traders, one of the most useful is the ability to make a gain even in a falling market. Unlike shareholders, cfd traders can either take up a long or short position. A long position means that the share price is expected to rise, so the asset is purchased, although it is never actually owned. Going short is the unique option, as it means that a trader sells the asset, fully expecting the price to drop so that it can be bought back when it has bottomed out.

However, as mentioned above, cfd trading is better utilised in the short term because of overnight interest which is charged on open positions. Brokers are free to charge what they want but the rates applied all have a relation to the LIBOR. CFD traders who hold a short position are the exception as they earn interest overnight, rather than having it charged to their account.

Whilst the rapid swings in the market can mean that investors who place a trade in the right direction earn decent amounts of profit very quickly, it can also be the downfall for many. Because only a small amount of money is required to be paid to open the trade, if the market is heading in the wrong direction the broker may request more funds in order to maintain the contract. Not paying the additional money could result in the position being automatically closed by the broker. Margin trading requires the investor to actively monitor the market to make sure there are no nasty surprises if the trade has moved in the opposite direction than predicted. However, there are risk minimising tools such as stop loss orders. These automatically close a trade once a certain level is reached, thereby reducing potential losses.

Contracts for difference are a useful type of trade to consider for many investors, especially when other forms of trading are not providing opportunities for returns due to economic weakness. However, whilst they undoubtedly have their place in a portfolio, they should not be considered by investors who prefer to leave their trades once opened, as they require active monitoring on an ongoing basis to prevent losses and maximise profits.

Contracts for Difference are instruments you can trade that reflect the movements of assets underlying it. While allowing for losses or profits to be realized when underlying assets move in relation to positions taken, Contracts for Difference do not let the particular underlying asset be owned. In the simplest of terms, they are contracts between brokers and clients. There are many advantages to using Contracts of Difference but how successful you get also depends on obtaining the right CFD trading provider.

The advantages

A few of the benefits of Contracts for Difference include:

# Higher leverage - when compared with traditional trading, Contracts for Difference offer a higher leverage, usually beginning at 2% from the margin requirement. And with respect to the assets, the dpi can rise to 20%. Lower margins mean less capital outlays for investors and traders and greater potential returns.

# No borrowing stock or shorting rules - you sell short when the marketplace is down. Contracts for Difference don’t follow this, allowing for instruments to become shorted any time you want. Since no one actually owns the actual asset, there are no shorting or borrowing costs to be levied.

# One platform for global market access - most brokers for Contracts for Difference offer products in main markets on the planet. As such, it would be very easy to trade within any marketplace for so long as that marketplace is accessible from the broker’s platform.

# Professional services without fees - brokers for Contracts for Difference essentially are the same with traditional trading brokers but many CFD traders do not charge fees for trading CFD. For brokers that provide guaranteed stops, fees for the service are usually attained separately.

# No day trading requirements - other markets require that particular amounts of capital be met in order for day trade to happen. The marketplace for Contracts for Difference aren’t bound by these restrictions, with accounts often opened with less than $1000. The usual amounts though are between $2000 and $5000.

Interested in Contracts for Difference?

Then you need a broker. You can easily obtain a broker by going on the internet, with lots of sites available allowing you to compare various brokers in the region. Choose well so that you can get the most out of your efforts at taking advantage of an agreement for Difference. Look for brokers that are credible and also have wide-ranging resources. Search for the lowest opening balances required. Look for certifications to ensure the broker is operating legitimately. There’s nothing like throwing out your investment funds on the fraudulent broker.

Trading Contracts for Difference differs from other varieties of trading in the stock as well as Currency markets. The one thing that it has that is similar to many other conventional way of shares and share dealing is the fact that it brings in an income. Overall, however, it brings in a larger margin of profit compared to other contemporary way of trading. Instead of profiting by selling the particular shares and currencies, you profit by the modification within the prices of currencies and shares in CFD trading. Like a trading product, this type of trading is done on leverage only, and at usually, the leverage goes to 10:1 or even more as much as 20:1.

For novices, the simplest way to view and view the operation of the Trading Contracts for Difference would be to consider it as a way to magnify profits. Not only are they magnified, but they are real. For example, if you’re trading about the leverage of 20:1, and you invest say, about $10000, you will be bale to purchase as much as $200,000 worth of CFDs. When the shares rose in price by about $0.05, your profit would be $10,000 minus the costs. With respect to the leverage, your profits will be magnified through the same quantity of leverage. If you have chosen a CFD broker who trades both ways, you are able to make money from the falling and also the rising stock prices.

Unlike other share dealing practices, you can be able to trade on shorter periods with CFDs. This will permit you to make money from even the smallest moves in the prices of the stocks on the market. The shorter periods permit you more room to maneuver onto other profitable deals on the market.

For example, if you were trading on one stock for a month, it means that within that one month, you can only make money from the progresses prices of these particular stocks. Even so, had you been trading on the shorter lease; say like one week, you can shift your CFDs elsewhere in the other week.

Another difference between the CFDs and normal stock trading is you can be able to cut losses fast. Depending on the platform that you simply trade your CFD on, you can exit the trade within the same trading day when prices plummet. Within the normal stock trading, you’d most likely have to wait until the end during the day to determine if the prices will rise. Such could bring untold losses. All said and done, the major difference between the CFD and also the conventional stock trading is that the formers profits margins are bigger, which there is a way to count losses and re-locate fast.

The ascending triangle is a very well known chart pattern that has been used by many successful traders over the years. An ascending triangle is formed when the price action is contained within two lines. The top line is close to horizontal while the bottom line slopes up towards the top line.

Ascending Triangles, Easy To Trade

Most ascending triangles, in fact 63%, break out to the upside making this pattern very predictable. Around half (51%) of these breakouts are profitable and on average the profit per trade is 1.43% over a period of 10 days.

The high chance that the ascending triangle will break to the upside, together with some strong moves when the pattern does breakout, makes this pattern attractive to trade.

Refine Your Entries

A long breakout from an ascending triangle works better in a rising market which is clear from the poor performance in 2002 and 2008. Ensure the market is in a consolidation phase or an up trend prior to the breakout. Check the sector is in an up trend as well.

Ascending triangles that breakout near the point of the pattern produce inferior results. A breakout is better if it occurs before the pattern gets 90% of the way to the point of the pattern. Shallow patterns are also best avoided, where the pattern height is less than 2% when compared to the stock price.

Ascending triangles with two lows at the same price or two closes at the same price are also should be avoided, as this usually occurs in an illiquid stock. If the volume supports the breakout the results are better. Supportive volume means the volume on the way up is higher than the volume on the way down.

Ascending Triangles Are Very Profitable

You can improve your trading results by using a series of simple filters that have been outlined here. This select group of ascending triangles delivers an average profit of 1.83% in 10 days and is profitable on 58% of the trades. Overall this makes ascending triangles attractive to trade.

Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008.

Which is better to trade CFDs or stocks? The answer to this question is not obvious and it will depend on what you want to get from trading. Looking at CFDs vs Stock we will highlight the key differences.

Cash, All or Nothing

It is normally necessary to have 100% of the cash available to purchase a stock. Even if you were to use a margin loan and borrow to invest you will still be required to front up with about 40% of the investment in cash.

With CFDs the amount of cash required is as low as 3% for stocks and even less if you are trading indices or currencies. The profit potential when trading CFDs is very large due to the leverage employed and can be 10 - 15 times that available when trading stocks.

When it comes to making the most of your capital CFDs win easily against stocks.

What Happens When It Doesn’t Work?

When using a large amount of leverage it is not only gains that can increase it is losses as well. When you are trading stocks the worst case scenario is 100% loss if you paid for the shares in cash.

It is possible to lose more than 100% of the money you invested in the first place with CFDs, so risk management is very important.

Trading stock gives a much greater control over risk than trading CFDs. The leverage involved with CFDs make risk much harder to manage as losses can become large very quickly.

What Does It Cost?

Brokerage and interest charges are the two main costs of trading when looking at CFDs vs stock.

When trading stock there will be no interest costs at all. CFDs attract interest charges on the whole position.

With lower brokerage rates on CFDs and higher interest bills it will ultimately come down to how long a position is held to determine the winner between CFDs vs stock.

Tax Free Profits?

One of the reasons that CFDs were originally developed was to get around stamp duty that was payable in the UK on stock purchases. CFDs were exempt from stamp duty.

Australian traders will notice a difference between CFDs vs Stock when it comes to tax. There are no franking credits attached to CFDs and the 12 month capital gain discount also does not apply. There are tax advantages to stocks in Australia.

Tax rules are considerably different between different countries so it is not possible to determine the winner here as it will depend on your country of residence.

CFDs vs Stock, The Winner Is

CFDs provide greater leverage which gives you an advantage if you can manage your risk well. If not Stocks are definitely easier to handle. Which of the two, CFDs vs stock is better is ultimately up to you.

Lower brokerage costs make CFDs a better proposition for the short term trader, but interest can have an impact if you hold positions for the longer term. I like trading CFDs because of the greater upside that is available and work to actively reduce the risk that is associated with the leverage.

Understanding the dividend process will help you to understand what happens if a stock goes ex dividend while you are holding it with a CFD.

When trading stock, there are three important dates in relation to dividends; the ex dividend date, the record date and the payment date. When you are trading CFDs, the only date that is important is the ex dividend date.

Trading Stocks For Dividends

Buying the stock before the ex dividend date will entitle you to receive the dividend. Buying the stock on the ex dividend date you will not receive the dividend.

The next date is the record date which is 3 trading days (on the ASX) after the ex dividend date. This is the date the investor must own the stock on to receive the dividend. Because it takes 3 days to settle a share that is purchased the ex dividend date and the record date are three days apart.

The final date is the payment date on which the dividend cheque is actually posted to the investor. There can be a significant delay from the record date to the payment date.

CFDs - Its All About The Ex Dividend Date

When you are trading Contracts for Difference (CFDs) the only date of any importance is the ex dividend date as all three dates that apply to stock investors blend into one.

If you have bought the Contract for Difference (CFD) then on the ex dividend date you receive a cash payment equivalent to the amount of the dividend.

When you are short selling CFDs you will have a payment taken out of your account on the ex dividend date that is equal to the amount of the dividend. These payments or deposits will be processed from your cash account by the CFD broker.

Zero Risk, Is That Possible

It may then seem that by buying a Contract for Difference (CFD) one day before the ex dividend date and selling it after the ex dividend date you have found a no risk trading opportunity as you are guaranteed to receive the dividend.

There is a problem with this strategy and that is the stock normally drops the amount of the dividend on the day it goes ex dividend, which would wipe out any gain made from the dividend payment.

Likewise it does not work to sell a Contract for Difference (CFD) before the ex dividend date, the drop in value on the ex dividend day will be offset by having cash removed from your account for the amount of the dividend.

Franking credits cannot be used if you are trading Contracts for Difference (CFDs) for dividends. Using CFDs eliminates some of the tax advantage of investing for dividends.

The Ex Dividend Date and CFDs

On the ex dividend date you would expect the stock to drop equal to the dividend payment. If you own a CFD you will get the dividend payment in cash. If you have sold a CFD and are short you will pay out the dividend amount in cash.

Interestingly, most CFDs do not trade on a Contracts for Difference market. The Australian Stock Exchange has created a market for CFDs but as at the end of 2008 the volume traded on the ASX CFD market represented only 1% of the total CFDs traded.

CFDs Traded Over The Counter

CFDs trade Over The Counter (OTC) which means that they are an agreement between you and the CFD provider. There is no formal CFD exchange, so to exit the position you must close the position with the same broker you entered the contract with. It is not possible to close the CFD with a different broker.

The prices that you can trade a CFD at are usually the same as the underlying market as the CFD brokers mirror the underlying market with their quotes.

Protecting The Position With A Hedge

While no formal Contracts for Difference market exists, other than the ASX CFD market, the CFD broker may, or may not trade the underlying instrument on the underlying market to protect the position they have taken with the individual trader. This is known as hedging a position.

If a trader was to buy 300 shares of BHP, the CFD broker could simultaneously buy 300 shares of BHP on the ASX market. By doing this any gain or loss made by the trader on the CFD position equals the gain or loss made by the CFD broker. The broker is said to be fully hedged.

If you choose to use Direct Market Access then the CFD provider fully hedges every position. If you are using the Market maker execution model then the CFD provider does not necessarily enter every trade and may instead hedge the total position.

No Guarantees With CFDs

The strength of your CFD broker is an important consideration as you must enter and exit your CFD trades with the same broker. When it comes time to take a nice profit you want to be sure your CFD broker is there to deliver it.

Most CFD brokers are large companies that are publicly traded so information on their financial strength is readily available. However not all companies are public and finding out the financial strength of those that are not may be more difficult.

CFD Market

The absence of a CFD market does not really affect traders at all. By placing orders with your CFD broker you are likely to trade at market prices and the order could even be executed in the physical market.

Trading a high probability trading strategy with CFDs is certainly attractive. This style of strategy is right very often, which makes it much easier to trade.

It is not necessary to endure long periods of losing trades, drawdown in account balances is less and the leverage of CFDs does not have the same impact on an account.

High probability trading strategies are not necessarily the right direction to focus on with your research.

Its Not About Being Right

It takes two numbers to gauge the performance of a trading strategy. The hit rate (how often the strategy is profitable) and the risk reward (wins relative to losses). It is the combination of these two factors that determine the effectiveness of the strategy.

Consider the following trading strategy that is profitable 95% of the time. The strategy wins $100 on each profitable trade, so from 100 trades the strategy makes $9,500 trades on average. But what happens on the other 5% of the trades.

If the average loss is $2,500 then the strategy loses $12,500 based on 5% of the 100 trades. Even though this strategy is right very often it still loses money. It is not one or the other measure in isolation, it is the combination of win% and the risk reward.

You Will Still Have Losses

Most high probability trading strategies rely on small profit targets and wide stop losses. FAP Turbo is one example of this a Forex trading robot that is right 95% of the time.

These strategies work very well up to the point where they experience very large losses. A tighter stop can be used to reduce the size of the loss. This however will usually reduce the win% and how often the strategy wins.

It Is All About Balance

Back testing can be used to determine the optimal balance between risk and reward and the win%. Try testing a variety of different stop loss levels to determine the best outcome for risk reward and win%.

In my personal testing around trading chart patterns I have found that the best trades go well from the start and do not look back. Tight stops can be used with a positive impact on the results of the strategy. I have also found that using profit targets limits gains and while it improves the overall win percentage it does not improve the overall profitability of the strategy.

Make Money First, Be Right Later

Strategies that follow the trend are not right very often and win about 30% of the trades. The wins are much bigger than the losses with a risk reward greater than 3. This combination produces a profitable strategy.

Scalping relies on a high win% usually 70% or more, but usually have a low risk reward where profits are equal to losses. This is another profitable strategy.

Successful trading is about making money, not about being right. Ensure the strategy you use is profitable overall. It is not just about getting a high probability trading strategy.