Into FSB? Check the forecast

We all know that financial spread betting can be a highly lucrative way to derive value from a volatile market. What is less well known is quite how to make the sort of immediate short-term judgments that can actually produce returns on any sort of a consistent basis. FSB is a difficult trick to master.

The standard rationale – applied by serious investors who use FSB in preference to the more highly surcharged stock and currency markets per SE, just as much as the more recreational investors who make up the greater number of FSBers – is that there is no substitute for insight.

Insight, of course comes in many forms, and it is often only after the event that we can see which way the runes were lining up. If spotting those patterns was as straightforward as hindsight sometimes makes it seem, we would, of course, all have been soaking up the sun on the beach long ago.

There are multiple data streams that investors and would-be investors mine as they seek out the sort of short-term gains that FSB can deliver. There is one, however, that only intermittently hits the Tradefair dealing screens – and even then it only does so in the most unmissable manner.

Weather patterns and one-off events have always had an impact on markets – in terms of their impact on harvests, transportation or one-off disasters. Some of these events can be predicted, especially those associated with slow moving weather patterns, others – and their market impact – less so.

But those slow moving events are largely out of the picture when it comes to the immediate time-scales that are part and parcel of FSB.  The essence of FSB is that it is the ideal vehicle to capitalise on surprises in the market place. Long-term prediction is anathema to this particular activity.

However, when all else fails, there is one aspect of the weather that has, time and again, been shown to have a direct and immediate impact on market movements. Serial psychological studies have found that market investors and traders are more bullish when the sun shines, and more conservative when their local conditions are overcast.

Within that overall finding, it has been suggested that the correlation between market optimism and sunny weather is particularly strong amongst private investors. There are two aspects to this which are worth separating out here.

The first is that this insight – if that is what we are to call it – will apply specifically in those instances where there is a high proportion of private as opposed to institutional activity. Keeping an eye on the weather may give a clue as to one of the easily overlooked marginal factors that may have a bearing on a stock, even – or perhaps especially – on a quiet trading day. In sum, if all other evidence leaves your judgement pending, take a note of the weather, it might just be the marginal difference that can take an investment that one or two points further than might otherwise be the case.

The other key point that this insight brings into focus is less about the markets than it is about the investor him or herself – that means us! In crude terms, what the evidence suggests is that however dispassionate and calculating we might tell ourselves we are being, there is always a degree of our thinking and decision making that is conditioned by our mood.

If you are tempted – on a fine balance of evidence – to take a position on a trade, just stop for a minute to check the weather. If your state of mind is in key with the conditions, maybe you should think again.

If your optimism does blossom in the sunshine maybe you should be wary of getting carried away. As parents on beaches the world over tell their kids, you always need to take extra care in the sunshine.