What the Spending Cuts Might Mean for Your Spread Betting

LONDON, January 22, 2011 /PRNewswire-FirstCall/ -- Last month's spending review affirmed that the UK will undergo budget cuts exceeding GBP80 billion over the next four years. With around half a million public sector jobs likely to be lost in order to aid economic recovery, financial spread betting provider City Index (http://www.cityindex.co.uk/) looks at assessing how such imposing cuts might affect - or may have already affected - your spread betting strategy on domestic markets such as the FTSE 100.

In financial spread betting (http://www.cityindex.co.uk/spread-betting/), technical analysis is based on looking to the past for potential indications of the future. In view of this, some traders might have considered that the last time Chancellor George Osborne announced budgetary cuts - 24th May this year - sterling immediately dropped in comparison to the dollar and the FTSE 100 fell to an eight-month low of 4939. This time, however, the pound rose against the dollar and fell against the euro. This is the flaw of technical analysis in spread betting; it is only an indication of what has happened, not what is happening or what will happen.

Conversely, fundamental analysis in financial spread betting focuses on interpreting news activity in order to speculate on which direction the markets might be moving in. Therefore spread betting traders who employ fundamental analysis may have been aware of the cuts for some time. This might mean they have already taken account of the spending cuts when managing their spread betting positions, a theory given weight by the fact that the FTSE 100 traded flat on Wednesday 20th October, days after the spending review announcement.

Naturally, dramatic developments such as the spending cuts can lead to volatility in terms of market movement. Spread betting within a volatile market calls for watertight risk management (http://www.cityindex.co.uk/spread-betting/how-to-manage-risk.aspx). Thorough market research is more vital than ever and guaranteed stop losses will limit your spread betting downside potential to the exact target amount you set, regardless of the gapping or slippage which can occur with volatility.

Finally, it is important to remember that standing aside is sometimes the best position to take in spread betting. If you do not understand the market or the activity affecting it well enough, do not risk money spread betting on it.

City Index offers a tight 1-point spread on the UK 100, as well as on Germany 30, France 40 and Wall Street. Learn more at http://www.cityindex.co.uk/1point-spreads/.

Spread betting and CFD trading (http://www.cityindex.co.uk/cfd-trading/) are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

SOURCE City Index

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