Many novice spread betters start, quite rightly, at the top: they’ll go for an index such as the FTSE 100.
The trouble is, fans of FTSE 100 spread bets have had a dull time recently. The index may offer bursts of intraday activity from time to time for day traders but fundamentally it is drifting sideways. It shows little sign of breaking convincingly above the psychologically important 6,000 points level, and equally, it rarely dips below 5,800 points. In short, for most of the last two months it has been range bound.
But if the wider UK market looks a lost cause, try digging a little deeper for opportunities.
One option is to look for sector trends. For example, the construction and materials sector has underperformed the wider market over the last three months whilst pharmaceuticals, beverages and personal goods have all outperformed. If you think these trends will continue you can play these sectors separately, or as pairs, via a broker.
Meanwhile, drill down to the level of individual stocks in, say, the retail sector and you’ll find stocks such as B&Q-owner Kingfisher (LSE:KGF) powering ahead recently. It has been on a solid uptrend since the start of April, thanks in part to warmer weather and a late Easter break, but also some radical changes to the way it sources products. Meanwhile, quite a few other retailers have languished.
For spread betters, that kind of divergence offers the chance to bet on just a single stock (an upbet if you are bullish). Or you could put an upbet on Kingfisher as a wager on continued improvements and a downbet on the sector as a whole – Kingfisher is up 25% this year versus 9% for its sector.
Another pairs trade would bet on Kingfisher against say another retail stock such as the more embattled Home Retail Group (LSE:HOME), owner of Argos and Homebase. In both cases, stop-loss orders will limit the damage should the bet backfire.