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Get Your Head Round the Markets.

As a 28-year-old trader on the Singapore stock markets, Nick Leeson was blamed for the collapse of Barings, Britain’s oldest bank, and the loss of £830 million. He was sentenced to six and a half years by a Singapore court, but was released early, in 1999, for good behavior. His story was immortalized in the film Rogue Trader starring Ewan McGregor.

Financial spread betting is something that I have a bit of experience with. It represents the closest thing to the futures markets that I used to trade on, and can plug the man in the street straight into the sheer buzz of trading the world’s greatest financial markets. A word of caution, however, from perhaps the man most qualified to give it: As well as the chance for some serious gains, you can lose your shirt in a relatively short period of time.

Picture Ewan McGregor playing me in the movie Rogue Trader, looking into the mirror and announcing to his reflection that he had lost $50 million in one day. And that was one of my better days! Keep this image in mind and the level of risk that you’re undertaking will never be forgotten. That’s not a bad position to start from! Spread betting markets are as fast and furious as the markets that I used to trade in Singapore and nobody should ever risk more than they can afford to lose. That sounds like an easy lesson, but fuelled by ego and a desire to win, it’s one that can slip your mind.

The absence of capital gains tax, stamp duty, brokers’ fees and commission all make it attractive way to play the stock markets, but a word of caution should always resound in your ear. All of the major spread-betting firms offer markets on the financials, they are regulated by the SFA, but there are still a number of jurisdictions that are trying to catch up. They all offer a fantastic alternative to the more traditional stockbrokers, with whom you have to lock up large amounts of capital and often pay unreasonable amounts of brokerage. You can trade on any individual share that you like; the major indices are a popular wager and commodities, currencies, bonds and interest rates are always quoted.

Many a trader or gambler will tell you that there is a ‘gut feel’ to some of their trading or betting. That may be the case, but usually you’ll end up with egg on your face if you trade this way. The performance of any share price, commodity or currency is driven by various sources that include political, economic, security, social, competitive, managerial and investment factors. Markets also exhibit trends and memories – even if the average trader seems to have the memory of a goldfish – but dice-rolls, coin-flips and decks of cards don’t. There are also investors who follow a trend just because everyone else is doing it. The problem is that, not only is it impossible to quantify uncertainty, decision-making is far from rational either. If you’re thinking of trading on any of these markets the best thing to do is purchase a software package that enables you to look at the charts of the various stocks and indices and teaches you how to decipher them.

Most ordinary investors (those not doing it professionally) enter a market after it has already rallied 30% and then exit equally as poorly. The edge is with the financial institutions, but you can blunt this by empowering yourself with these charting tools. Markets are obviously subject to the economic and political climate, but, at the moment, they all seem to be stuck within fairly tightly defined ranges. Pick out those ranges successfully and you can trade away to your heart’s content. Any breakthrough to the up or downside needs to be consolidated with an increase in market volume for it to be significant.

Many of these spread betting firms advertise that you can take a position on credit subject to status. I wonder what the chances are them letting me have a credit account – about 862,000,000-1.

By ‘Rogue Trader’ Nick Leeson

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