Monday, April 14, 2014
Sandford, Goals to Gold
The second part of the book deals with trading basics. Sandford’s preferred trading method is spread betting, legal in the U.K. but not in the U.S. (Spread betting firms bear an uncanny resemblance to bucket shops, which flourished in the U.S. from the 1870s until the 1920s.) For those unfamiliar with spread betting, Sandford explains: “you are betting a certain amount of money per point or pip that a product moves up or down. … we’re not buying anything, we are just betting on the movement of the price of something. … You never own anything, so there is no capital gains tax, and it is not seen as income so it is not taxable. The government still classes it as betting.” (p. 114) The spread bet has an expiration date; for instance, the wager may specify that the price of a stock will rise over a period of three months. Since spread betting firms don’t charge commissions, spreads on these trades are normally wide, the farther in the future the wider.
Spread bets are often levered; you need deposit only a small fraction of a trade’s total value in advance and you can potentially reap much higher returns than in the stock market proper. Let’s say, to use the author’s example, you firmly believe that shares in Lee’s Boots will rise and you are willing to wager $10 per point. When the stock is trading at $10 per share, you place your bet at the offer price of $9.98 and set a stop loss at $9.90. If the stock price goes up to $11 per share, you make $1000; if it falls, you lose $100. Sounds good, doesn’t it?
Well, spread betting firms make money not only because they normally demand wide spreads but because most of their customers lose money. (Some firms trade against their own customers.) Sandford describes basic technical analysis techniques, such as MACD divergence, and positioning guidelines that are designed to change these odds. He also takes the reader through a series of illustrative trades, many drawn from the forex market.
The final part of the book is entitled “Trading in Football Terms.” I must admit that I, who don’t follow soccer, didn’t quite connect with “play like you’re not going down” (and hence get out of the relegation zone). But most of Sandford’s analogies could have been drawn from practically any sport, or from life in general—for example, be patient and match your tactics to the situation.