Welcome to NatWest's Spread Betting programme.

What is spread betting?

The background of spread betting and how it works

Let's start with a simple definition...what is spread betting?

Spread betting is a way of trading that enables you to profit from the movement on a wide range of markets from shares to currencies; commodities and even interest rates.

It allows you to trade on whether the price quoted for these financial instruments will go up OR down.

That's the key - you can bet on almost any price going up OR down.

So what's the background to Spread Betting?

Spread betting isn't new; it originated in 1974 to allow investors to trade the price of gold.

Trading gold wasn't available to the majority of investors in the seventies and the development of betting on the price movements of gold opened it up to a wider group of investors looking for diversity within their portfolios.

In today's market spread betting is very accessible and has become an important investment for many people. In the UK over 500,000 spread betting accounts are already running and more open every day. Financial spread betting offers

• Zero commissions
• No Stamp Duty
• Tax-Free profits, although remember that tax laws may change.

Therefore, it is often cheaper for people to trade with a spread bet than buy the real stock or share through a stockbroker.

So how does a spread bet work?

In the stock market, when you want to deal in shares, you go to a stockbroker and they will quote you two prices. The lower of the two prices, which is the one you will get if you are selling shares, is called the bid price. The higher quoted price is what you will have to pay if you are buying shares, and is called the offer price. The difference between the two prices is called the 'Spread'.

In spread betting the principle is exactly the same, two quoted prices, bid and offer. If you believe the share (or index, commodity or other market) will go up, you buy at the offer price - the higher of the two prices quoted. If you believe the share is going to go down your bet will start at the bid price - the lower of the two figures.

Spread betting allows you to trade without physically owning the share. It allows you to trade on a wide range of markets and in a fluctuating market will still provide you with the opportunity to make a profit whether the market goes up or down - as long as you bet the right way!

What are the main advantages?

Alongside the core tax advantage, spread betting gives you access to a wide range of global financial markets not readily available to Retail Investors: for example commodities, foreign currencies and global market indices.

Spread betting is capital efficient in that you do not need to invest the full amount of capital required to gain the profit or loss of the share or instrument you are trading. This means that gains and losses can be magnified. It also allows you to profit in falling markets which breaks from people's traditional view of investment, the belief that your investments must rise in order for you to make money. Another core attraction for people is that you do not pay commission on any trades you make.

Sound too good to be true?

As with all forms of investment there are always risks. Let's look at the main disadvantages:

The major drawback with spread betting is that you could lose more money than your initial investment.

However this fast moving area for investment comes with the latest technology and risk management tools. These will be explained in more detail on our programme as each module explains the nuts and bolts of spread betting.

Today's volatile markets and fast moving share prices have become a common feature in the world. Some people are already benefiting from the advantages that short term trading can bring. And once you do 'get' spread betting you may wonder why you didn't start doing it sooner.

Now you know the basics of spread betting join me to explore this further in the next module.

In this module we're going to look at the basic arithmetic around how we can make money from spread betting.

But how does spread betting compare financially to share dealing?

Let's take the equity market.

Say we've decided to buy 1,000 BP shares.

The Buy price of these shares is 435.00p and we wish to purchase 1,000 shares, therefore, our initial outlay is £4.35 x 1,000 which will cost us £4350. Plus we have to pay a commission charge of £15 and 0.5% stamp duty which for this purchase would cost us £21.75. Therefore, our total outlay to buy 1,000 shares is £4386.75.

If the share price was to rise to 450.00p and we decided to sell then our gross profit would be 150.00p as our 1,000 shares have each increased by 15.00p. From this profit we would have to deduct the commission costs £30 as well as the stamp duty charge of £21.75. Once we have subtracted the charges our overall profit would be £98.25.

Let's take a look at how spread betting differs to this transaction.

We have decided we are going to spread bet at £10 per point instead of buying 1,000 shares. The buy price is 435.00p; therefore our initial outlay is £130.50. This is calculated by multiplying the buy price by the stake which is then multiplied by the margin. The margin is the percentage of the actual trading amount which is paid up front.

In this example the margin is 3%. We multiply the share price of 435.00p x 10 (our stake of £10 per point) we then multiply this by the 3% margin. Therefore, if we review our charges we can see that the overall outlay for spread betting at £10 per point is £130.50 which is significantly cheaper than buying the actual shares.

If the price of the shares was to increase overnight to 450.00p and we decided to sell the gross profit is £150. From this profit we have to deduct a finance charge which is 89p, if we keep our trade open overnight. The financing cost is charged on a nightly basis. When we spread bet we are not subject to commission costs or stamp duty costs, so, the net profit from this trade would be £149.11 which is a higher profit than buying the actual shares.

If we compare the traditional share dealing trade with the spread betting trade we can clearly see that the overall outlay for share dealing is £4,386.75 compared to £130.50 for the spread bet. If the shares were to increase in value then our net profit for buying and selling the shares would be £98.25 compared to a net profit of £149.11 if we had spread bet. Therefore, we would have made a 2% return on our share dealing trade but a 114% return on our spread betting trade with the same movement in BP share price.

Remember, as with all forms of investment there is a risk that the price of the shares may move against us.

If the price of the share was to fall to 420.00p and we decided to sell our shares we would have actually lost £150. In addition, to this cost we would also have to pay £30 commission costs as well as a stamp duty charge of £21.75. Therefore, the net loss would be -£201.75.

When spread betting, if the share price was to fall overnight to 420.00p and we decided to sell at this point our gross loss would be -£150. Plus the finance cost for spread betting which is 89p. So our net loss would be -£150.89. In a loss situation we would have made a -5% return on our share dealing trade but a -116% return on our spread betting trade with the same movement in BP share price.

This comparison shows that with Financial Spread Betting we get the same exposure to traditional share dealing without investing as much capital. Also it's clear that the transaction costs are lower and there's no stamp duty to pay.

Now we have covered off the basic arithmetic join me in the next module where we will talk about how to manage our risks.

It's important to understand the risks before we start spread betting. In particular how we calculate our outlay and the potential additional costs should a trade go against us.

Spread betting is a form of margin trading also referred to as leveraged trading or gearing. This is where our initial outlay is a percentage of the actual trading amount, but we still get 100% exposure in the market.

The initial margin is the deposit required to begin trading. The size of this margin is dependent upon who we trade with and also the type of instrument we are betting on.

With NatWest the initial margin typically ranges from 1-10% of our proposed trading value. It's important to monitor the total margin on our trading account to make sure we have enough funds to cover our open positions.

As with any form of investment, the aim is to maximise profits but minimise risks. One way is by using a Controlled Risk Bet (CRB) which carries a small premium. A CRB ensures that our trade closes at the price we requested even if the market moves right through this level.

Let's look at Controlled Risk Bets

When we open a trade we can decide the price at which point the trade will be automatically closed to minimise losses this is called a CRB, also referred to as a Guaranteed Stop Order (GSO).

For example: If we traded on the BP shares at 435.00p (at £10 per point) and when opening this trade we requested a CRB of 425.00p then if the price of the shares fell to 415.00p the trade would have been closed at 425.00p.

There are three other ways to minimise risk:

• Stop loss orders
• Limit Orders
• One cancels the other orders - an OCO

Let's take a closer look at Stop loss orders.

Using a stop loss means our open position will automatically be closed if the market moves against us. Stop losses can also be used to lock in profit. If the market moves in our favour, we can move our stop order with the prevailing price, which locks in profit if the market suddenly starts moving against us.

Stop loss orders can be used to limit the trading risk and are an essential part of disciplined trading. Using stops means we are automatically taken out of a position if the market moves against us, which limits our loss.

How can we use a Limit Order to manage risk?

A limit order lets us pre-determine either a price higher than the current price at which we wish to sell, or a level below which we wish to buy. This means we can pre-define the level at which we want to close our position and take our profit, or the level at which we want to buy below the current price of an instrument.

For the stop loss and limit orders to be carried out the instrument has to trade at the particular price we requested. One thing to remember is that sometimes during fast moving and volatile markets, our stop loss will be triggered at our chosen level but our order could be filled at a lower price. This is known as slippage. However a Controlled Risk Bet eliminates slippage.

It is also important to remember when we place a stop-loss or limit order, if we close our trade without using our stop loss or limit order, then we must also close any outstanding stop losses or limit orders. Stop losses are an excellent method of managing risk, however, they may stop us trading early if the market we are trading in only has temporary lows, but then goes higher.

Limits and stops don't have to be set up with every trade. However, as a beginner, it is suggested that people use them.

Lastly, let's look at One Cancels the Other (OCO) orders

One Cancels the Other (OCO) orders offers a number of advantages for those wishing to get in and out of the market without having to watch it constantly. An OCO is the combination of both a limit and a stop. It can be used to take a profit if the market moves in our favour or to limit loses if the market moves against us.

For Example: We traded on the BP shares at 435.00p (at £10 per point) believing the price will rise. We want to take the profit if the price peaks to 460.00p but at the same time we want to limit our risk so we set a stop loss sell at 420.00p.

If the price falls to 420.00p the Stop Order Sell is triggered. The sell is executed at 420.00p and limit sell is automatically cancelled and our bet is closed. Therefore, our loss is calculated by:

Opening Price: 435.00p
Closing Price: 420.00p
Difference: 15 points
Our loss is: £150.00 (calculated by 15 x £10 per point)

If the price rises to 460.00p our Limit Order Sell is triggered. The sell is executed at 460.00p, the Stop Sell is cancelled and the bet is automatically closed. Our total profit is:

Opening Price: 435.00p
Closing Price: 460.00p
Difference: 25 points
Our profit is: £250.00 (calculated by 25 x £10 per point)

So what other ways can we manage our risk?

• It's safer to trade in a diverse range of markets if we are opening more than one trade at once. Trading an index for example may be less risky than trading one stock as our exposure is spread across a range of stocks that make up that index.
• It's good to monitor the market we plan to trade in as well as any other markets that could have an effect on our trades.
• Also regularly check any open trade and its price we suggest doing this several times a day.

We have talked about methods to manage risk when spread betting so join me in the next module to find out about the NatWest Research Centre.

Now that we've covered the basics of how to trade, our next big decision is: What should we trade, a stock, a currency, maybe an index?

Obviously we can't tell you what to invest in but NatWest do give access to a wide range of information. This module is all about the NatWest Research Centre and some of the tools that are available to help traders make more informed trading decisions.

The three main tools current customers use are:

• What's Hot? This tool is used to view the hottest trades as they happen
• Most Traded As it suggests, this tool shows yesterday's most traded instruments
• And the Watchlist which enables current trades and any future trades to be followed

Staying with the Watchlist we can add instruments we are interested in following simply by clicking on the search tab in the trading centre.

We select the product from the list and then click on the + button to add to our Watchlist.

We will now see BP PLC Cash on our Watchlist.

From here we can access information from the research centre. We can use the Research Centre to enhance our knowledge of a desired product.

For example clicking on the Chart Tab we can view the share price. We can alter the chart to view the details of the share price for the period we want as well as the preferred format, for example, a bar chart or a line chart. This tool allows us to compare our instrument with other shares and we can view this information by the minute, day, week or month.

If we want to find out all the ground breaking news relating to this product as and when it happens we simply click on the News icon.

This is a great tool that ensures were always up-to-date with the latest stories, economic reports and expert commentary.

We can also get further information on tips & analysis, news wires and an overview from the brokers by clicking on the information icon.

Broker Views as it suggests, provides us with recommendations from the brokers. This lets us see suggestions from the brokers whether to buy, sell or hold a particular stock and gives us an overall feel for the market we are interested in. Obviously broker views are not investment advice its simply general information from a select group of brokers. Additionally, from this page we can also view the price change and performance indicators which we will talk about in a later module.

At every stage within the research centre we can place a trade by clicking on the trade button.

If at any stage we want to remove any of our instruments from our Watchlist we simply click on the X button.

The research centre has lots of other tools to help us find additional information on a particular product or market. So from heat maps to scatter plots, performance tables to market maps we can find these plus more in the research centre.

In this module we have covered the main tools of the NatWest Watchlist and Research Centre.

Continue on the NatWest Spread Betting programme where we'll be exploring in greater detail how we place a spread bet and manage the risks involved.

So how do we place a spread betting trade?

Most spread betting is done online however we can also spread bet over the telephone, on a mobile phone or via the Market maker® trading platform which allows us to build bespoke trading screens.

Once we have decided to place a bet we need to consider the bet size. This is the amount of money we want to bet on every individual point the price moves up or down. The bet size is always given in pounds (£) for each point which eliminates any currency risk should we choose to trade foreign shares. If you are an Irish client the prices will be in Euros (€).The smallest trade size is £1 a point which is equivalent to 100 shares.

The bid price is the lower price on the screen and is the price of our share or commodity when we sell. We would sell if we expected the price to drop. The buy price is the price we pay when we buy the share or commodity. This is the higher price on the screen and we would buy this is if we expect the price to rise.

For every point the price moves up or down, a profit or a loss is made in line with the size of our bet.

One of the main attractions to spread betting is that we can buy or go long if we expect prices to rise; or sell or go short if we think prices will go down. So even if the market falls, we can potentially make a profit.

So let's get started

We've been into the Research Centre to check out the share price of BP. In the news section there's an article about BP being one of the few FTSE 100 stocks making progress. Albeit by a few pence but it has gone up again today so we think that there is more to come and would like to bet on BP shares.

First we access the live price for BP. We can use the Search Instruments function or the Filter Instruments tab.

Using the Search Instruments function is simple, just type in part or the entire name we are looking for in the search box and the results will be displayed.

On the filter instruments tab click on the Share Bets directory.

BP is a UK share so expand the UK Share Bets directory and select the Energy Share Bets directory to find it.

Depending on how long we want to keep the position open, we now have to make the choice between a Daily Rolling Cash bet or the Quarterly spread bet.

In this example select the Daily Rolling Cash bet. Select BP Plc Cash and then click on Get Instruments.

Click on BP Plc Cash Bet and the order ticket will appear on the top right of the screen. The bid price of 430.00p and the offer price of 435.00p appear above the SELL and BUY boxes.

In this example, we decide to buy at £10 per point also known as going long, enter £10 in the Amount section.

We then have to decide what type of order we wish to place. As we think the price is going to continue to rise we are going to set a limit order at which price we want to sell.

For every point it goes up, we will make £10.

We think the price will peak at 460.00p so set the limit order at this price and click BUY. We are then given a chance to confirm the bet in an Order Summary window. If we agree to trade at this price, click PLACE. We'll receive a message that confirms the bet within a few seconds. The trade will now be displayed in our Positions tab. We can use this tab to monitor our trade and the profit or loss we are making.

If, however, we think the price of BP shares are going to fall from 435.00p we would place a sell bet this is known as short selling or going short.

We place a sell bet at £10 per point at 435.00p. Again we are given the opportunity to confirm our bet and we click PLACE to continue. If, as expected, the share price falls to 415.00p we gain 20 points, giving a profit of £200.

Bet £10 / point at 435.00p
Price Falls: 415.00p
Points gained: 20
Profit: £10 x 20 points = £200

However, if we had gone short at £10 per point and the price actually increased from 435.00p to 450.00p then we will make a loss of £150.

Bet £10 / point at 435.00p
Price Rises: 450.00p
Points lost: 15
Loss: £10 x 15 points = £150

What are the costs involved in spread betting?

Using our BP example we bought BP shares at 435.00p at £10 per point. The margin on BP shares is 3% which means our initial margin requirements is £130.50.

When we spread bet we are not subject to commission costs or stamp duty costs.

However, if we hold our position overnight we will be subject to a financing cost. This is charged on a nightly basis, therefore, the longer we keep our position open the greater the cost.

Here is how the cost is calculated:

(Buy price x cost per point) x LIBOR rate (this is variable) / 365 (interest is calculated on a daily basis) = Financing cost

LIBOR is the London Interbank Offered Rate and is the rate banks charge each other for short-term loans.

We can see our open position on the Position Tab. The main column of interest is the profit and loss column which displays the profit or loss on our positions allowing us to easily monitor how our trades are performing. Additionally the Total Margin display shows us how much money is needed to fund all open positions.

So now we have placed a spread betting trade, seen how to monitor trades and what costs are involved in spread betting.

To explore the tools on the platform in greater detail make sure you read the next module.

Good research can improve trades

The Research Centre provides tools to help us understand how the market and economy can affect our positions and the subsequent impact on any price we trade.

Fundamental Analysis is a form of analysis that provides us with information to try and predict price movement. This type of analysis values the company's financial and operational performance. Analysts study the reason for market movement such as profit warnings or new contracts.

Fundamentals are facts in the public domain it might be news, financial results, new product launches, economic data or director dealings.

The information the Research Centre provides could have an impact on a share price in the short to medium term and can therefore be used to a trader's advantage.

Fundamental analysis is one of the most common tools that a trader uses to make decisions about trading an instrument.

The Price-to-Earnings ratio is a popular method used by traders today. It is calculated by:

Share price / company's full yearly earnings per share = Price-to-Earnings
For example: We want to calculate the P/E ratio of BP where the price is 435.00p per share. If the average earnings in 2008 per share was 58.00p then the P/E ratio would be calculated by:
435.00/58.00
7.5 = P/E

Generally, the greater the P/E ratio the more expensive the shares are and the lower this ratio the cheaper the shares are. If calculating the P/E ratio, we must compare with other companies in the same market to get an accurate reflection.

So how do people use these fundamentals to trade?

Our Research Centre gives access to a whole host of different research tools to help us find a trading opportunity and enable us to research the facts and figures.

To access this information simply select the instrument we are interested in, in this example we will look at BP shares.

Once this information is retrieved we can see various Performance Indicators on the right hand side.

The webpages also incorporate a lot of fundamental information for at a glance views of an individual company's performance.

We can see how any company is performing relative to its sector and the market as a whole. This tool has taken a handful of the key financial data points and shows how every UK company compares against others.

So how do our Performance Indicators work?

A Performance Indicator gives us a high level overview of how a company is performing relative to its peers. To keep things simple, just remember that the more stars there are, the better the share is currently performing.

The grey stars represent how a particular company is performing relative to the whole market. The purple stars represent how a particular company is performing relative to its sector.

If we continue down the page we see What the Brokers Say:

This section provides us with information on all of the major brokers' views on each instrument we want to trade. These usually consist of buy, sell and hold recommendations from the world's premier investment banks. Brokers views help provide us with a general consensus and a feeling of market sentiment concerning our chosen instrument but is not investment advice.

To get an overview of the UK equity market we can use our Heat Maps they give an at a glance overview of share price movements.

We can easily identify what stocks are in the spotlight each day for either positive or negative reasons. The stocks coloured red are dropping in value and the stocks coloured blue are rising in value. This movement is calculated on the day from the market open price against the latest price. The heat maps can help us identify potential recovery plays stocks that improve quickly.

A Stock Screener is a tool that spread betting traders use to filter stocks with certain criteria of their choice. By using a stock screening tool, traders are able to follow a strict set of criteria that they require prior to investing in a company.

For example, we could screen stocks by entering the following criteria:

'Has a market cap over 500 million'
'In the telecommunications industry'
'Has a P/E ratio between 15-25'
'Has an annual Earning Per Share growth of at least 15% for the past three years'. The Earnings Per Share is the amount of return from our initial investment outlay.

The Screener would then produce a list of stocks that displayed all of these attributes. The Share Screener tool can replace many days of research simply by a few clicks of a mouse. The Screener can be used to find undervalued and overvalued stocks easily and screen them against our own chosen benchmarks.

The Market Bar Charts allow us to screen stocks by a multitude of different factors.

One of the most popular screening methods is to examine the overall performance of stocks in a specified time frame. The most widely used is the 30 Day price change but we can select anything from 1 day to over a 5 year period. We can quite clearly see individual stocks in our chosen sector and their price performance. Any severe movements are easily spotted. This is very useful if we are looking for potentially undervalued stocks or those that we believe will continue to have a strong run in the future.

The final fundamentals tool we are going to cover is our News Maps function. This gives us all the market news headlines as soon as they are released. We can select a whole host of different types of news stories to populate this screen - ranging from market reports, new market buzz, economic news, press tips and broker upgrades and downgrades, to name a few.

For an introduction to technical analysis please continue on the NatWest Spread Betting programme, where we will also discuss how to build a trading strategy.

How do we build a trading strategy?

Complimentary to a fundamental analysis is technical analysis, this studies the effect of the market movements. We're going to talk through this form of analysis as it helps to build a trading strategy of our own.

Technical analysis is the study of market price and the volume of trades. This form of analysis does not take into account the company, the commodity or the market. Instead this focuses on historical market data. From this, charts are provided with historic data enabling us to try and predict a future market direction. Technical analysis is not an exact science, but nevertheless many people use it to trade the financial markets.

A technical trader or chartist always works with three key assumptions:

• Firstly, market price action leads everything else. The markets are very efficient and effective machines and within just a few minutes of news breaking, investment banks and professional traders are buying and selling accordingly and the instruments true new value is very quickly reflected in the price. This makes it very difficult for normal traders to be able to effectively make money just from news flows
• Secondly, prices move in trends and tend to follow simple patterns over periods of time
• Finally, history often repeats itself. Perhaps the assumption that technical traders should remember above all others is that prices that have been important in the past can potentially become important again. By important we mean they have reached levels that have brought about a big turn around in the price.

The first step to learn about technical analysis is to look at candle-stick charts. Most new traders will have only ever looked at a line chart when checking the price of an instrument over a specific period of time. A line chart contains 2 closing prices with a line joining the two points.

Select the instrument of interest in this example we are looking at BP shares. We can populate the right hand table to receive the information we require in this instance we have selected to view the BP shares for the last three months, in a candlestick graph format and the results being recorded on daily basis. We are then presented with a graph showing this detail.

This kind of chart contains four pieces of information for a given time period:

• The opening price
• The closing price
• The highest price
• The lowest price

The coloured bars each represent the opening and closing points at a time in the life of our given instrument. A red bar means that the price has gone down since the market opened and the green bar means that it has gone up higher since the market opened.

There are thin lines called wicks at the top and bottom of each of the coloured bars. These represent the highest and lowest points that the instrument has reached during our chosen time frame. These wicks can give us insight into important turning points in the price where there has been a rebound and the price has started to recover.

The high and low levels would not be clearly seen in a normal line chart because it only plots the opening and closing points. These high and low levels are potentially important and we could very easily miss them if not for candlestick charting.

Support and Resistance is another form of technical analysis. Although Support & Resistance is one of the simplest forms of technical analysis it could be argued that it is also one of the most important.

A support level is the level to which a share may drop before rising again. For example, if a price drops to 420 then rises to 450 then falls back down to 420 then rises again to 450, it is likely that if it drops to 420 again it could bounce again. Remember we are working on the assumption that history tends to repeats itself.

A resistance level is the level a share may reach before the price falls. For example, if a price keeps on hitting 480 then falling back down again repeatedly, it is possible if it reaches 480 again, that it could fall back down again.

So how do we identify if a price encounter is support or resistance

We have to plot the trend over the duration we specify and identify the:

• The previous highs
• The previous lows
• Round numbers, for example we would plot 500 instead of 523
• And any historical data

How do we draw a trend line?

A trend line is a sloping line that shows support or resistance. Before, we were just looking at horizontal lines but we can also have diagonal levels. There are three types of trend lines:

• An Uptrend is where there is a succession of higher highs and higher lows, where the share price sits above the trend line.
• A Downtrend is where there is succession of lower highs and lower lows and the share price sits below the trend line.
• Sideways trends are a period of neither higher highs nor lower lows.

Remember prior to trading always research the instrument of interest and before expanding any trading investments ensure additional research for the new investment is carried out.

Technical analysis and the tools available in the Research Centre enable us to make more informed decisions about any trade.

Join me in the next module where we discuss technical analysis in further detail.

Let's take a look at Moving Averages

The Moving Average shows the average value of an instruments price over a period of time. They are used to emphasise the direction of a trend and smooth out the price fluctuations.

Typically, when a market moves below its moving average it is a bad sign because it means the stock is moving on a negative trend.

The opposite is true for instruments that move above their moving average. You should also remember that moving averages are most often used with other indicators so, as with all the indicators discussed in this video, it is sensible not to make any decisions based on any one indicator in isolation.

We can view the moving average on different time frames for example a 20 day or 100 day period. The longer the period we view the moving average over the less sensitive the moving average will be due to the daily changes in price.

Building on this we can now move onto Moving Average Convergence Divergence (MACDs)

This indicator shows us the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day Exponential Moving Average (EMA) from the 12-day EMA. We can also view a nine-day EMA called the signal line which is then plotted on top of the MACD and shows buy and sell signals.

We can interpret the MACD in three ways:

• Crossovers
• Divergence and
• Dramatic rise

Crossovers are when the MACD falls below the signal line which indicates that it may be time to consider selling. However, when the MACD rises above the signal line it suggests the price of the instrument is likely to rise. Many traders wait for confirmation that the MACD has moved above the signal line before entering into a position too early.

Divergence is used to describe the price of the instrument moving away from the MACD. It signals the end of the current trend.

The dramatic rise is when the MACD rises dramatically. That is, the shorter moving average pulls away from the longer term moving average and is a signal that the security is overbought and will soon return to normal levels.

Traders also watch for the MACD moving above or below the zero line because this signals the position of the short-term average relative to the long-term average.

Another useful indicator is the Relative Strength Index (RSI)

This Indicator compares the recent gains to the recent losses of an investment, to try to determine overbought and oversold conditions. The RSI ranges from 0 to 100 and an instrument is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and it may be a good idea to consider closing out any long positions or even look to take a short position.

On the other hand if the RSI approaches 30, it is an indication that the instrument may be getting oversold and so is likely to become undervalued.

We hope you have enjoyed the NatWest Spread Betting programme.

Please feel free to return to any of the previous modules.

Our helpful staff are also on hand if you have any questions you would like answered, just give us a call.

To get started you can open an account via our website or if you need more time why not open a demo account which we will fund with play money to allow you to test drive your trading approach.

Every day in the financial markets there is an opportunity to make a profit or a loss, but remember, don't be greedy - bank your profits, cut your losses and spread your risk.

Happy trading.