Dom Davis (The Blog)

My iPhone is many things to me, the hub of my mobile digital world. What with all the G’s (3G, EDGE, GPRS, GPS, 802.11g and gyroscope) and the multitude of apps it can do just about anything. Watch films and TV programs? Check. Listen to music? Check. Radio? Check. Read books? Check. Communicate with people via email, facebook, twitter, text and IM? Check. Surf the web? Check. Read books? Check. Play games? Check. Eat money through hardware costs, monthly subscription and the endless handing over of money to Apple (and now Amazon) for new music, films, apps and books? Check, check and check. I dread to think how much money I’ve handed over to Steve, either directly or via o2.

Today that changed. IG Index, who to my mind do the bast spread betting platform bar none¹ released their iPhone app. IG have had a mobile site for their spread betting platform for ages now, even one that’s formatted for the iPhone, but I’ve always found it a bit clunky and the charts (which are a must for the type of trading I do) were buggy and unreliable. The new iPhone app, on the other hand, is very slick, execution appears to be reasonably fast that the orders appear to be executed at the price you hit the button, not the price it’s at when the server finally gets the instruction. The last thing you want is a slow GPRS connection turning your big fat profit into a loss.

A quick check of the forex markets (24 hour, move fast, good for a quick test of anything with small stakes and tights stops and limits) and I spotted EUR/USD was on the up, rallying from a small retracement. 50p a point, stop at 20 points (maximum loss would be £20), limit at 2 points (maximum gain £1) and every intention of bailing the instant I struck a profit or the instant it looked like the trade was going south. A punt, yes, but as punts go not a massively risky one, not over these time scales with the entry and exit points. Worst case I loose connection, the app crashes, or some other disaster, the trade goes wrong and I lose a tenner. Best case the same as before but I get a quid. Actual result: I netted 35p.

The reason why I said the app ‘appears’ to execute at the price you hit the button is because at 40p I hit ‘sell’. Nothing happened. A quick look at the UI and I spotted the close trade button. I hit that instead (35p), a dialogue comes up telling me it’s closing the trade (20p) and the little spinney ‘loading’ icon (15p) followed by a confirmation (10p). Total time to close the trade was about 5 seconds (which is a VERY long time in forex) but a quick check of my account showed I was 35p up.

So there you have it, the iPhone is no longer a drain on the resources. Armed with my new app, a bit of luck and a following wind I might even cover the cost of 3 iPhones (original, 3G and iPhone 4), the GPS dock, the headphones, the mic attactchment, the docks, the stipend to o2 to use their mobile network paid every month since November 2007, the 99p or whatever it is I’ve paid for each and every song I’ve downloaded from the ITMS (and there’s been a lot) and the frightening number of apps I’ve bought (and lets not forget the $15 or so spent on books thus far). Well, maybe not cover, but put a large dent in… well a dent… OK, well 24p more and I can get myself a cheap game for free

¹ Yes, I know the ProSpreads platform can do lots of fun advanced thingies but I defy anyone who doesn’t have a couple of years knowledge to even understand how it’s used. The only thing all the extra bells, knobs and whistles did for me was allow me to blow my £50,000 trial account in half the time it would have otherwise.

I should probably point out that Spread Betting is a leveraged product and the value of your investment can far exceed your original stake. It’s a wonderful way of throwing away money, even if you do know what you’re doing and probably not recommended for those who don’t know what they’re doing. That said, if you really, really want to give it a go let me know because if you sign up for an IG Index account recommended by me I get a bottle of champagne or something. You might also get some money in your account, I can’t remember, all I know for sure is I get goodies if you then go and make a few trades.

Spread betting is basically betting on the movement of stocks, currencies and the like. I used to do Forex trading betting on the exchange rate between the US Dollar (USD) and the Euro (EUR). The exchange rate is quoted as, for example, 1.5250 which means that €1 buys you $1.5250. You’re betting on the final digit ticking up and down, so a £1 spread bet means that for every 100th of a cent (point) the exchange rate moves you make (or loose) £1, and move they do. The Forex market is stupidly huge and those numbers change constantly, sometimes by 10 or 20 over the space of 10-15 minutes, sometimes by 100′s.

Despite the name, spread betting isn’t quite gambling. A reasonable strategy and good risk management will make you money. Lets assumed your strategy wins 40% of the time. That’s loosing on 6 out of 10 trades. You will risk an amount, £X and try to make £2X. Over 10 trades, on average, you’ll loose £6X (you’ve lost 6 times) and win £8X (you’ve won 2X 4 times). That’s a profit of £2X. X also wants to be about 2% of your total trading capital so you can loose up to 50 times in a row before being out completely.

When I started I started small. I was betting 10p per point with trades being placed for minutes rather than hours or days. The way spread betting works you’re automatically down when you enter a trade. With EUR/USD I’d be down 2 points, or 20p before anything had happened. I’d set my trade up so if it went another 28 points in the wrong direction to get me out of the trade. This would loose me £3 tops.

Quite often (in fact most of the time) the trade would go the wrong way to start with. I’d often see my 20p loss grow to £1 or £1.50 before it headed in the right direction again. Eventually it would break even, then start making a profit. More often than not the profit would then start to get eroded, sometimes heading back to break even, or maybe even a small loss, before moving to greater profit. So my bet would start at -20p, move to -£1.50, head to £0, go on to £1, head back to £0, go on to £3, back to £1, then to £5, back to £4, on to £7 and so on and so forth. My goal here is £6 since I’ve risked £3.

The way I worked would be to change the trade when it got to £2 or £3 in profit so that my trade would automatically be closed if it went back to break even. I’m now risk free. Each time it gains £1 in profit I move the point where it would automatically get closed by £1. Sometimes I would think that it couldn’t go up any more, cash in, and be happy. Other times I’d ride it as far as I could and have the trade closed by the automatic stop. Doing this I could make £15 or more in a trade which is much more than my target. Quite often I’d get two of those in a row netting me £30 in a day. Sometimes I’d have a bad day, but it was only £6 down. The problem was, even with making 3 or 4 times my risked X, with things averaged out I was only making £9-£12 per 10 trades which was 3-5 days worth of trading. I needed to scale up and that’s where things started going wrong.

I scaled up by 100 times. Instead of 10p per point I traded £10. That’s £300 risked with my strategy, and a gain of £600 every 10 trades assuming everything goes as planned.

So the trade is on. I’m automatically down 2 spots so I’m at -£20. Things go the wrong way to start off with so could go to £100 or £150 down before moving back towards break even. Despite the trade going in exactly the same way as before physically, psychologically I’m panicking. £150 is a lot of money. As it heads to £0 my nerve breaks and I close out the trade as soon as it starts turning a positive profit, possibly just a fraction of a point, netting me £3/£5 or £8. That’s all well and good but if I make a loosing trade I’m £300 down and I need to make 60 winning trades at £5 per trade to make it up. That kind of winning doesn’t happen.

Even when I could hold the course and watch the profits rise I need to be banking £600 minimum. I watch the profits rise to £100, then it reverses and heads towards £0 again. With the smaller stake I take this in my stride and sit tight because I’m pretty sure it’ll go back up again. Now I’m watching my £100 become £90… £80… £70… will it stop or will it keep going to -£300? My nerve breaks, I bail at £50. Sounds like a good profit, but I still need to make 6 winning trades for every losing trade to break even and that isn’t going to happen.

No matter what I tried I couldn’t get passed the fear of loosing vast sums of money when the bigger amounts were in play. I’d even do trades on two accounts, one at £10 per point, one at 10p per point. I’d bail with the £10 account, let the 10p run and watch as it made me £6, £10, £15. That’s £600, £1000, £1500 IF I’d let the £10 account run.

So you get yourself worked up. YOU ABSOLUTELY WILL NOT INTERFERE WITH THE TRADE. You set it up so it’s completely automatic. You’ll walk away with a £300 loss of a £600 gain. Nothing else is allowed. Problem is there is a 60% chance you’re going to walk away with the loss (possibly more so as you’re worked up and not thinking about things as rationally as perhaps you should). I did it a few times and each time I lost. I’d not done enough trades to see my 40% wins, was down hundreds and doubt has now kicked in. I started second guessing my trades, deliberating too much, waiting too long and entering trades too late, resulting in more losses. You have to remember that 6 losses in a row still doesn’t mean your system isn’t working and means you’ve lost £1,800. You could make that back and more in your next 4 trades. But then again you might not.

So there is my problem. I can make money with spread betting, quite easily. I just can’t make very much. As soon as the numbers get to any appreciable value (much more than 50p per spot) I freeze, make mistakes or just bail too early. The Fear just gets in the way. unfortunately the trading system I use is very subjective. I can automate getting out of the trade once it’s on but there is no way to automate entering the trade. If I could work out how to do that I’d make a fortune.

As it was my spread betting experience has left me roughly breaking even. My small gains over a few months were wiped out by a few bigger losses as I ramped things up. I’ve withdrawn most of the money from my trading account now, but there’s still some in there because I do still enjoy trying to diving the vagueries of the financial markets.