Spread betting strategies
Discover the most common strategies that traders and investors use when spread betting, including:
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FUNDAMENTAL ANALYSIS
Fundamental Analysis is a technique that investors like yourself can use to determine a share’s value by focusing on underlying factors that affect the company’s business and its future prospects. Investors and traders can perform fundamental analysis not only on individual shares but on sectors and economies as a whole.
Fundamental analysis can be split into two categories, Quantitative and Qualitative. Quantitative fundamentals are measurable characteristics about a business such as its revenue, debts and Price/Earnings ratio. Qualitative fundamentals are less tangible factors such as the quality of the company’s executives or the brand recognition. Neither is inherently better than the other and an analyst should use both when making an informed decision on the stock.
WHAT ARE KEY RATIOS FOR TRADING?
Price/Earnings (P/E)
This is the price per share/earnings per share. Effectively the price you pay to receive $1 of earnings. Low P/E means a stock is cheap, typical of stable mature industries that have low growth potential. High P/E means a stock is expensive, typical of young industries with high future potential.
Price/Book (P/B)
This is the price per share/book value per share. Book value is defined as the company’s total assets minus the company’s intangible assets and liabilities. Low price to book could mean the company is cheap or there is something inherently wrong with it.
Dividend Yield: Dividend per share/Price per share
A dividend is the main way companies distribute earnings to shareholders. This ratio shows the ratio between share price and dividend size.
Return on Equity (ROE): Net income/ Shareholder's equity
This ratio is the amount of net income returned as a percentage of shareholder equity. ROE measures a company’s ability to generate profit with the money shareholders have invested. Higher is better.
Profit Margin – Net income/Sales
Profit margin calculates how much of a company’s total sales flow through to the bottom line. A higher figure shows the company is performing well.
Debt Equity Ratio: Total Liabilities / Shareholders equity
Used to measure a company's financial leverage. The higher the ratio the more aggressive the company is with its financing.
TECHNICAL ANALYSIS
Technical analysis looks at historical price movements and volumes to forecast future price movements.
Technical analysis makes the assumption that market action discounts everything and price movements are not randomised but appear in patterns and trends.
Depending on their individual strategy, technical analysts will often look for chart price patterns such as 'head and shoulders' and employ a variety of market indicators such as moving averages to the Relative Strength Index.
You can find out more about the specific patterns and indicators on our guide to chart analysis and chart patterns.
PRO TREND LINES
Our charting package includes Pro Trend Lines. This proprietary service allows you to automatically identify key support/resistance zones as well as gap levels on our charts.
NEWS TRADING
Many traders look at news to guide their trades. This news can come in a variety of formats including economic releases and corporate actions. News can have a profound impact on prices and its effect can be seen for hours and even days after release.
One of the most popular times at Spreadex for trading is the first Friday of every month when non-farm payrolls are released in the US. This is a major indicator of economic health and has an impact on everything from the value of the dollar, stock market and the price of gold.
ECONOMIC DIARY
Traders can access a comprehensive Economic Diary which includes major economic news, corporate statements and historical data.
Find out more about spread betting global financial markets.
