If you were to make a list of financial topics that have grabbed the interest of the wider public over recent years then spread betting and foreign exchange trading would surely be near the top. Both have been around for decades, but developments in technology and financial markets in the past five to ten years have made them extremely hot topics right now.
In his new book ?Spread Betting the Forex Markets?, Chief Market Strategist at IG Index David Jones looks at the basics of spread betting and explains why it has become such a popular method for trading a whole host of markets. He then follows this with a thorough and accessible explanation of the forex markets and how you can trade them using spread betting ? covering everything from strategies to risk management.
There are many reasons why forex continues to grow in popularity. The huge size of the market makes it difficult for it be affected much by single trades or a rogue piece of news, and this can mean that trends in forex are more durable than those in many other markets; it also means that the trading costs are low.
And forex is seldom dull. On a quiet day in stock markets, watching the short-term movements of many shares can be a mind-numbing experience ? whereas the often spectacular volatility in forex provides continual opportunities to make profits. Of course, it must be realised that this volatility does also provide continual opportunities to lose money; and that additional risk is something that Jones is particularly good on highlighting and helping to avoid. Relating some of his early misguided experiences of spread betting forex ? including inadvertently exposing 20% of his account on every trade, he says:
?Let?s fast forward a few months from when my account was opened. Did I:
1 achieve total domination of the largest financial market in the world, or
2 have five losing trades on the trot at some point and effectively blow up my account?
I will leave you to figure that one out!?
Thankfully Jones then goes on to illustrate the mechanics of successful position sizing, stop losses and other key measures so that you don?t have to go through the same uncomfortable process.
The final part of the equation in the growth in forex trading of late has been the evolution of spread betting over recent years, which, among many of its advantages, allows beginner traders to get involved in markets at a very low exposure (for example, trading at less than £1 per point). No longer do you need tens of thousands of pounds to dip your toes in the forex market.
Having worked in the spread betting markets for almost ten years, David Jones is an expert in the field. So the first section of his book concentrates solely on spread betting and serves as an excellent recap of the mechanics and terminology that it can be all too easy to forget. Like a lot of things in life, spread betting can often be unnecessarily overcomplicated but Jones cuts through the jargon and explains in simple terms how it works and how best to take advantage of it.
Forex, like spread betting, is also often something that can appear intimidating and complicated. Jones?s careful explanations of the ins and outs of the market which follow this spread betting section ? looking at what makes the market move, why people trade it, and other key features ? should help to dispel this confusion forever.
The third section is devoted to the sophisticated and reassuring means of containing risk as mentioned earlier. No such measures are foolproof, but Jones looks at how to manage it effectively. Risk is often a subject that traders pay too little attention to in the beginning ? and, when advanced, can then be lax about; but as Jones explains, it is a critical area of trading at all levels. Managing risk sensibly ensures that a trader doesn?t get wiped out by a string of small losses, helps to work out how much money should be traded and also means that trading should be relatively low-stress. Jones argues that there are three components of risk; the risk of being wrong, the risk versus reward of any one trade and also position sizing. He then shows how that relates to the forex market, with detailed examples and methods of management.
Finally, the book takes a look at trading strategies, with examples of how tried and tested approaches to forex trading would have worked in the real markets. No abstract treatises, these take us through analysing the market, planning our trade, calculating risk and reward and position size, executing the trade, monitoring it and managing the position ? and all so that we hopefully come away with some profits in tact.
Written with both the novice and more experienced spread bettor in mind, David Jones? book is an expert introduction to this fascinating market.