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MARKET COMMENT
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The Fool has gone to the dogs. Or rather we went last night: Wimbledon Dog Track, that is! A spectacular run of second-place finishes and a shower of torn-up tickets reinforced my long-held view that gambling is not for me! It's one of the reasons I've never been particularly attracted to spread betting or CFD trading. But lots of active investors have not been so cautious. Around this time last year, there were an estimated 50,000 to 70,000 people with spread-betting accounts, and I'd wager (if I was a gambler, of course) that the market has grown since then. Spread betting has been around for about 30 years, although it wasn't until 1995 that the likes of IG Index offered wagers on individual shares. One of the attractions of spread betting is the ability to 'go short' - betting on a share going down. As the bear market dragged on and on, this attracted more and more people. Shorting seemed like a one-way bet, until the market rallied in March of this year. Since then, many investors have discovered that shares that look expensive often tend to stay that way for far longer than seems feasible. That's the first problem I have with spread betting. Not only do you have to be correct about whether a share is over- or under-valued (depending on which way you bet), you also have to be correct with your timing. Because your bet is geared (i.e. share movements are magnified), you can be asked for additional margin calls - more stake money - rather quickly if your timing is a little off. See this article for an illustration of how it all works. Here at the Fool, we've always thought that market timing was 101% luck, so I'm loathe to adopt any investing strategy where it's a crucial component. The gearing aspect is the second reason I've steered clear. It's all too easy to get into trouble all too quickly, and be lured into making rash decisions in order to recover your losses. Some people use strict stop losses, pre-set points at which they will close out their bets to limit their losses on any given position. However, with volatile share prices, especially when the market opens at 8am, these stop losses can get triggered inadvertently. So, while my gambling prowess continues to falter at every hurdle, I'll be sticking with my online share-dealing account. I think that's risky enough for me!