Which Markets are Best to Trade?
A spread betting account gives you trading access to a huge array of financial markets. Stock indices, company shares, forex and commodities are all available along with more esoteric products such as Exchange Traded Funds (ETFs) and American Depositary Receipts (ADRs). With so much choice it sometimes can be hard to know where to start, particularly if you’re coming to spread betting for the first time. So it’s understandable that some of the first questions people ask are: what’s the best market to spread bet on and where can I make the most money?
The simple answer is that the best market to spread bet on is the one you know most about. That in turn should give you the greatest opportunity to make money. After this you should consider trading times and other factors such as the cost of trading one market compared to another in terms of dealing spread and margin requirement.
It can be a bit overwhelming to log on to the platform for the first time and be confronted with loads of different markets with their prices constantly updating. Some novice traders are tempted to look at all that activity and jump straight in hoping to make what looks like a quick, easy profit. Resist that temptation! Instead, the first thing to do is to simplify things. You can do this by picking a few markets with which you are most familiar. Or, if you are a newcomer, you may want to start off with a major stock index, such as the UK100, and a major currency pair such as the EURUSD. These are popular markets which have the advantage of tight spreads and plenty of liquidity which in turn means they have the lowest dealing costs. The less money you spend on the actual trade, the more you have to speculate with.
Some of the most liquid and heavily traded markets are major stock indices such as the US30 (Dow Jones Industrial Average), US500 (S&P500), German DAX or the UK’s FTSE100. Popular commodities include oil, gold and copper. There are also the major currency pairs, such as EUR/USD, USD/JPY, GBP/USD and AUD/USD which are very actively traded, particularly during European and US opening hours.
Another factor to consider when deciding what to spread bet on is the trading session itself. There are three main ones: the Asian Pacific, European and US trading sessions. Depending on the market you’re trading you’ll see peaks in volume and volatility during one of these sessions. This is when you should look for opportunities as the markets are moving and profit potential is high. However, so is the potential for suffering a trading loss. As a consequence you may decide that there are certain times of the day when market volatility is such that it is too risky to trade. The important thing is that you identify such trading periods so you are forewarned. It is impossible to anticipate every period of raised volatility but a bit of market study will certainly help.
It’s also very important to work out what sort of trading suits you best. Some people like short-term day trading. Typically, this involves trading actively but never holding an open position overnight. This suits people who have the time to watch the markets during the day or evening, or who can study charts and use technical levels to set up their opening and closing orders for the following day. For people who can’t make this level of commitment then longer-term position taking could be the answer. Longer-term traders tend to deal less frequently and try to identify trending markets.
But whether you’re a short or longer-term trader you should practice different strategies and closely follow market trends and patterns in order to identify high probability trades. This is where charting and technical analysis is so useful. The more you concentrate on defining your strategy and exercising it on one market, the more likely you are to increase your chances of scoring profitable trades.
In conclusion, there’s no one market that you should be spread betting on. But studying just a couple of markets at a time can help you to define a personal trading style. So take your time to understand what you’re comfortable with and practice applying technical analysis to charts. The experience gained this way will boost your profit potential and then knowing which market to trade will be a no brainer.
brought to you by David Morrison of Spread Co