Spread betting is great in a world where shorting stocks or indices is seen as evil and in America’s case unpatriotic. Shorting is the Ying, Yang balance, it’s the good and evil that regulates a market thus reducing the need for panicked government policies (as seen yesterday on shorting Fannie & Freddie).

In these times of rising inflation, soaring gas prices, diminishing wages and wage freezes you need to protect or at the very least hedge your positions. As regular readers will know I have started buying various stocks and scaling into positions. With the current global drop in equities I’m holding back a little but will continue to buy stock. When going for a long position I will buy stock rather that spread bet. This gives me an undefined time period to grow the stock value; generally however I’m looking at a five year time frame. In the current volatility my purchases have dropped in value but over my time frame I’m satisfied with their potential.

To protect the drop in value I mostly use spread betting to short the market. This is a great inflation hedge because as things worsen your account increases. Again I’m not the sort of trader who will dip in and out because having tried that I realised I like a good nights sleep. Generally I will take out a sell on FTSE Annual futures which gives me a few months to play with the position. Whilst the spread is far greater you are given the advantage of time and with these current market conditions I generally bring my stop loss to break even quite quickly.

The other advantage is leverage and with a -2.50 sell placed on Monday I now am running a profit of 600 Euro. In considering that the margin on this bet was 1000 Euro without a stop loss but as you move your stop to break even you cover your short.

Using this strategy to run your shorts and using stops with adequate space to move you can potentially make good returns. Personally as this is my fist year trading I am still using the minimum stake size of 2.50 to scale into a position. This way I’m protecting that all important capital which is your ultimate goal.

Selecting a good entry point is never an easy thing to do. With markets pushing lower every day the potential for a bounce is always lurking in the background. Timing and covering your shorts is where the hard work is. Taking profits too early and not allowing them to run is a problem all of us I’m sure would be happy to deal with.

Happy Shorting!

My dip into AIB seems slightly premature at 11.00 Euro as the share is now trading at 9.70 Euro. I did state I expected it to fall as low as 8.00 Euro where I would continue to trade into my full allocation. That said I hadn’t expected it to trade down to that the week after I bought them. Sodds law.

On the plus side my FTSE trades are now yielding a 40% return on my total takings for the year which it’s too shoddy at all. After having the trade open for two months and being down by an equal amount I am happy I traded with the full force of my conviction. My exit for the trade is 5500 or as close to that as possible. From there I will place very cautions buy positions up to 5600 on FTSE year end futures.

On the economic front the mire seems to be widening and people seem to be facing the harsh reality of what lies ahead. In Ireland the slow realisation of the impending storm is getting a little more press coverage http://www.rte.ie/business/2008/0624/esri.html. If the ECB do proceed with the proposed rate hike which has a lot of merit from a EU stance Ireland will be in serious difficulty. The French consumer spending index increased today which gives Trichet more ammunition to use in his inflation arsenal. We are living in interesting times and the future is a by no means as clear cut as black and white. There are going to be some serious bumps ahead. Thank god for spread betting and short selling.

I have been following the banks and in particular Irish banks for some time now like most market observers. Recently however I have become more than interested in AIB who are trading today at a seven month low of 12.25. I have been interested in the stock for over a year and during the most turbulent times said I would enter at 12. It never reached those lows but looks like it could be heading that way now. As this is a long term three year trade I would look at shares not a spread bet. However even a long spread bet at this price could yield profits on a short term bounce back to 13.

Back to spread betting and my FTSE shorts are a lot healthier now. My procrastination has cost me a lot but this is my fist year of trading and I’m still in baby step mode. My goal still stands at a 10% profit for the year. I have no intention of increasing my shorts now as I lost my chance at 6300. My interim expectations are for the market to move between 5900 and 6000 before heading to the March lows in July/August.