Welcome to Spread Betting Handbook.

The aim of this site is to help you improve your profits from spread betting. We provide a more sophisticated set of analytical tools to complement your existing investment strategy and help you make more effective trading decisions.

We monitor all of the major asset classes to help give you an overall view of the markets, and each week we provide updated charts and models for the main equity indices, short term and long term interest rates, currencies and commodities.

What makes our service different?

Most spread betting firms provide free charting packages that you can use to implement standard technical indicators such as moving averages, oscillators, volatility bands etc. At a fundamental level however, all of these indicators are derived from price action, which only gives you one window into the markets. Inside Spread Betting Handbook, we provide an expanded view of the markets through the use of market sentiment data combined with price action and in addition, we have developed proprietary models that will enhance analysis of your market of choice.

A Powerful Equity Market Indicator

It is important to be able to know when to be assuming risk in the markets and when to be sitting on the sidelines, earning interest in preparation for a more favourable time. Our equity market risk indicator for the major Western indices will help you to make this decision. Have a look at the following figure showing our risk indicator for the S&P500 index (showing data up to the 21st November, 2008).

You can see that our algorithm has identified a number of high risk periods for this market: the 2 year period surrounding the infamous 'Black Monday' stock market crash in October 1987; the stock market fall connected to the US Savings and Loan crisis between late 1989 and early 1991; the 6 year stretch from April 1997 till June 2003 covering the lead-up to and fallout from the high-tech mania (Alan Greenspan's famous irrational exuberance comment was made in December 1996); and the current financial crisis. Our indicator is non-lagging and first warned of this new period of high risk on the 30th July 2007.

The Unique Nature of Futures Markets

Most markets that you can trade using spread betting platforms are futures markets. In other words, the price is not the price that people are willing to pay for something at that moment, but is rather the price that people are willing to pay for something at a future date (the settlement date). If you make a bet on a futures market, once that settlement date is reached your bet will be rolled over to a new contract with a later settlement date. The crucial point here as far as your trading is concerned is that there will generally be a price mismatch between these two contracts. A knowledge of this potential price mismatch is important to help you decide whether it is a good time to trade this market from the long or short side.

To see an example of this, look at the figure to the left. The top panel shows the continuous closing price of the nearest cotton futures contract between January 2005 and June 2008. It looks as though if you had bought and sold cotton between those times, you should have made an overall profit of 42% (minus the usual rollover spreads).

The middle panel shows the same nearest cotton futures contract, but with the prices at each rollover adjusted by the price mismatch between the two futures contracts. If you are spread betting, it is this price graph that truly represents your profit or loss, and if you had bought and sold between January 2005 and June 2008, you would actually have made a loss of 22% even though the nearest futures price was rising overall. Also note that this is without adding in the usual opening and closing spreads taken by the spread betting company. Your loss would actually have been worse than 22%.

The bottom panel shows the changing price mismatch between the nearest and next nearest futures contract. For the cotton market, this is generally negative. In other words, longer dated cotton contracts tend to cost more (a situation known as contango - the reverse situation when shorter dated contracts cost more is called backwardation). As the example above shows, knowing this structure of a particular market can help you to decide which side of the market to trade from to minimise your risk. In Spread Betting Handbook we give you weekly updated charts of these futures spreads for most of the major markets in physical and financial futures.

Commodities

In the physical commodities arena, we analyse gold, silver, platinum, copper, crude oil, heating oil, unleaded gasoline, natural gas, corn, soybean, wheat, sugar, coffee, cotton and lumber. For each of these markets we give you 2 different measures of market sentiment alongside standard price action data, and a combined overall sentiment risk index. Market sentiment oscillates rather than trends, so our sentiment charts will give you an important source of confirmation for your regular price action oscillators. If a market's price action is looking oversold and sentiment is extremely negative at the same time, the downside risk will be much less than a market that is oversold price-wise but still has neutral or positive sentiment. In other words, our sentiment indicators will help you identify those markets with the best risk-reward profile. Also, it is often the case that market sentiment starts to shift before the price responds fully, as more sophisticated market participants take profits or put on new positions. The resulting divergence between price action and sentiment can often give a good indication of an impending major shift in trend.

We regularly update the performance and sentiment of the main commodity sub-sectors relative to overall commodity indices, to help you to find emerging trends in the commodity arena. We also update an index of commodity currencies, commodity ratios (such as the gold-silver ratio, gold-oil ratio and gold-copper ratio), and regularly update other commodity-related economic and equity indices to give you further insight into this sector.

Interest Rates

All financial markets are influenced strongly by current trends in interest rates, so Spread Betting Handbook provides a number of useful tools to help keep you on top of these trends. Each week we update charts on current policy rates from the major central banks, short term interest rate futures prices (eurodollar, euribor and short sterling) and longer term bonds (10yr treasuries, German Bunds and UK Long Gilts). All futures charts are shown both unspliced and spliced to correct for rollover of contracts, and sentiment indicators are included where relevant.

We include monitors of short term interest rate expectations derived from the futures market on a 6 month and 12 month timescale to give you a proxy for how many policy rate cuts or hikes are currently anticipated by the market. This measure is particularly useful to help identify profitable trading opportunities when market expectations deviate too far from what would be more realistic from economic fundamentals.

We have developed composite risk indicators for longer term bonds based on a combination of technical, fundamental and cyclical variables. Standard technical indicators can show when bonds are technically overbought or oversold, but to improve performance we have augmented this view by developing a model that gives a fundamental measure of whether bonds are over or undervalued. We also analyse cyclical financial variables to identify favourable or unfavourable environments for bonds and combine the technical outlook with these fundamental and cyclical models to give an overall risk index for bonds.

The recent financial crisis has been characterised by an extreme widening of credit spreads, i.e. the difference between the yield on riskier fixed income investments compared with the safest ones (typically treasuries). Therefore, we also regularly update a number of key spreads to help you observe how the market's appetite for risky assets is changing.

Currencies

Spread Betting Handbook also includes weekly updates for the most important currencies, i.e. the US dollar, the euro, yen, British pound, Swiss franc, Canadian dollar, Australian dollar and certain crosses. For these, price and sentiment data are augmented by short term interest rate differentials, one of the key drivers for currency trends. As with the other markets, we also develop an overall risk index for each currency that combines price action, market breadth and sentiment.

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