Spread betting is no longer a domain for only seasoned investors. It provides a scale of return for beginner traders as well. When you spread bet, you don’t actually buy a share. Instead you speculate and make a bet according to the way you think your particular market will move. It moves irrespective of whether the markets are rising or falling.
This not only makes it far more affordable, but enables the trader to make either a profit or loss depending on whether the market moves in alignment with your bet.
The advice that applies to traditional trading is also applicable to spread betting. But there are some key features that it’s important you understand before starting out. Let’s look at these in detail.
Start with trading small
When starting out it is far better and wiser to start small. Otherwise you stand a chance to make losses. Be sure not to bet too far on any trade. For the first few months restrict yourself to trading only small positions.
Always use stop losses
Stop losses allow the trader to limit potential losses. Here order is placed to close a trade automatically at a certain level if price move in an unanticipated direction. Whilst stop losses can seem frustrating, especially when they stop you at the low of the price movement. But they are crucial and can help protect your account from losing up to 20 percent or more in a single trade. So ensure that whenever you trade to use a stop loss.
Vary trading size
Make sure not to always bet the same amount each time you trade. While it may seem sensible, in spread betting it’s actually an irrational way to trade. Vary your bet according to whatever information the market is giving you at that particular time of trading. When the risk is high due to a smaller stop loss, only bet with a small amount. Whereas when the risk is low due to a high stop loss bet higher. .
Give close consideration to cost
Costs might not seem important but they are far more important than you think. To succeed at spread betting you must have the ability to control your profit and loss – and your cost. Trading cost is comprised of two parts; the commission and bid-offer spread. Commission isn’t a consideration as spread betting doesn’t charge commission, but what you really do need to watch is the bid-offer spread, as well as your total cost.
Focus on profit and loss, not winning and losing
Profit and loss depend on how much you make on each winning trade in comparison how much you lose on each of the losing trades. Rather than being about how many times you win a trade, it’s actually about your percentage profit in total.
Ensure you use an authorised and regulated broker
As spread betting is a leveraged product and therefore carries a high level of risk to your capital, it is extremely important that you have an in depth understanding of the risk and seek independent advice from an established broker before you start trading. Look for one that is reputable, regulated by the Financial Authority and posses the relevant tools, such as stop losses. A favourite among traders is CMC Markets, who are well established, regulated and respected within the industry. It is so important that you seek help from the right broker to ensure that you are knowledgeable and well equipped to start trading.
And most importantly – patience is the key!
To succeed in spread betting, it is invaluable to possess patience, as that will determine the difference between making informed bets and rushing into a losing trade.
Financial spread betting is fast becoming one of the most popular ways to profit from trading the global markets, but it’s crucial that you take into account the points that we’ve discussed before starting out to minimise your chance of losses.