Futures Spread Betting
Aside from straight market spread betting, traders can also bet on spreads on the price of futures contracts in a particular market, giving them the chance to bet on the medium term. Generally, spread betting is considered a short-term trading style, with the majority of trades taking place over the course of one trading day. There are exceptions, however, with one of the most prominent being the spreads offered on the futures market, which enable traders to take a longer-term outlook on asset or market speculation.
What Are Futures?
Futures are standardised, largely exchange-traded contracts that oblige the bearer to execute on a given underlying asset at a set future date for a stipulated future price. What this means in practice is that by buying into futures, traders are locking in tomorrow's assets at today's prices, allowing them to capitalise on the market movements in the intermediate time period. If markets are likely to go up long term, the value of futures contracts over that period are also likely rise, and vice versa - thus, futures contracts give a good indication of how asset prices are expected to perform over a set time period.
This affords spread bettors one major advantage, in that futures allow them to bet on prices that are based on future performance, rather than today's performance - in other words, futures spread betting allows traders to gain exposure to a longer-term price profile on a given asset than if they were to bet on spreads on the underlying asset price directly.
How To Spread Bet on Futures Effectively
The core advantage of spread betting on futures is of course the ability to maximise your earnings over a short space of time, without having to worry about your potential liability for capital gains tax. As a result, traders can expect to see significant variances in their trading fortunes through spread betting in futures, so it pays to have both an offensive and defensive strategy in place in order to give yourself the best chance of long-term success.
On the downside, that means setting tight stops to prevent yourself from losing too much on a single trade, while on the positive side that means creating an action plan that takes into account the nature of futures contracts to gain a better understanding of how their pricing may behave in certain market conditions.
For example, you may be going long on oil futures when OPEC announces they are to step up oil production by 10% in three months time. While this will have the effect of minimally driving down prices in the short term, the prices of 3-month oil futures will tumble as a result of the completely different market outlook that's anticipated down the line. In this instance you would want to be shorting futures contracts in order to capitalise on the likely suppression of oil prices that would arise from the OPEC announcement.
Spread betting on futures effectively is something of a learning curve, and while there are naturally strategies and techniques you can employ to give yourself a better chance of consistent, profitable trading, there's no real substitute for understanding, and for gaining a better insight into how the markets behave through first-hand experience.