Spread Betting in a Bear Market

Dec 30, 2010, 06:00 ET from City Index

LONDON, December 30, 2010 /PRNewswire-FirstCall/ -- In financial spread betting, 'bear market' is the term given to a financial market which falls over a period of time. If you are a spread bettor, it is imperative that you know how to deal with bear markets. Here, spread betting provider City Index (http://www.cityindex.co.uk/) looks at one of the biggest bear markets in history - and at how spread betting traders like you could tackle it today.

Black Monday

In spread betting and financial trading in general, October 19th 1987 will be forever remembered as Black Monday - the day that the stock market fell by 23% in just 24 hours.

Though drastic when viewed in isolation, the 23% loss in investment value was only a 23% loss for those who closed their positions and bailed out of the market completely. In fact, the market did begin to climb back from that low point and actually entered (barely) positive territory before the year was out.

Spread betting in a bear market

One important aspect of surviving a bear market is preparation. Around the time of Black Monday, spread bettors who employed technical analysis and charting knew that bear markets tended to occur every few years, and consequently chose to keep their spread bets open. This would prove to be the right decision. Ultimately, if a trader opened a spread bet on the first trading day of the year, January 2, and was able to keep it open throughout Black Monday all the way to December 31, they would not have lost a single penny.

Similarly, many spread betting traders opened positions with the markets at their lowest point, clearly realising the opportunity that would present itself as the markets recovered over the subsequent years. This shows the value of completely understanding the movements of the markets on which you are spread betting.

One of the best-known advantages of financial spread betting (http://www.cityindex.co.uk/spread-betting/) over standard share trading is that spread betting allows you to profit in a falling market as well as a rising one - a feature which clearly lends itself to trading in a bear market. Fundamentally, if you are able to interpret the signs and then react quickly enough to spread bet accordingly, a bear market does not necessarily mean a disastrous loss.

As technology has advanced over the years, the introductions of innovations such as iPhone spread betting ( http://www.cityindex.co.uk/trading-platform/iphone-trading-platform.aspx) and guaranteed stop losses have added greater flexibility and security to spread betting. Not only can you now react wherever and whenever you want, you can also give yourself guaranteed protection against market gapping in volatile conditions when you do so.

The most recent bear market occurred between October 2007 and March 2009. By learning about the risks and how to manage them, you can ensure that your spread bet strategy is in the best possible shape to survive the next bear market.

Learn more about spread betting on the financial markets with a free City Index seminar. Visit http://www.cityindex.co.uk/learn-to-trade/seminars.aspx for details.

Alternatively, open a free demo spread betting account in minutes at http://www.cityindex.co.uk/learn-to-trade/demo-account.aspx

Spread betting carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.

SOURCE City Index