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August Spread Betting Frenzy

In times of economic turmoil spread traders are known to increase the frequency of their trades while cutting bet running times. In August 2011 Spreadex experienced a 28% surge in spread betting volumes. Andy MacKenzie, the Spreadex‚Äôs marketing communications manager, noted: ‘The incredible volatility experienced by global indices, stock and commodities sparked furious short-term trading activity and meant other investors were forced to address longer-term positions.’

Rival, IG Index also witnessed a spike in account opening during the month and noted that clients had placed more bets than ever before. As a consequence of the market volatility and economic turmoil the number of deals placed by clients jumped through the roof, with the PureDeal trading platform executing almost 900,000 on Auguest 9 alone. Typically IG’s trading platform executes about 6 million transactions, which implies that daily volumes were up some 230% at the height of the trading periods. Curiously at the height of the volatility and volumes in August 4, the LIFFE exchange system went down under the pressure – not so for IG Index. Industry observers noted how smaller spread betting providers reacted by manually readjusting spreads to 1pt but IG used its automated system that increased spreads by 600% to 6pts during the downtime.

Most spread traders were trying to capitalise on short-term movements Angus of Capital Spreads noted that at times of extreme volatility they tend to see trade numbers increasing dramatically with clients trading non-stop in an attempt to capitalise on the wild movements so they can make money fast.

The majority of traders either see themselves as short-term or long-term traders. Either way the market turbulence forces both types of traders to take action and longer term traders might end up exiting from spread trades prematurely. The very violent nature of the market swings can trigger stops and close traders out of their trades only to see the market swing back in their favour, implying that some traders get the direction right but get caught out by the market swings.

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