It can seem quite exciting when you first start learning about spread betting. The real time pricing information, the almost instantaneous execution of a trade, and the ability to take a position in the market worth far more than you actually have at your disposal, thus allowing you to make bigger profits quicker can all seem quite seductive.
The reality is however far different. Not fully understanding how the markets work or react to world events, and putting at risk more money then you could ever afford to lose could spell disaster.
Food for thought:
- Consider A Demo Account Some Spread Betting firms such Capital Spreads offer a free demo account where you can familiarise yourself with the concepts of Spread Betting while using fake money. This could be a good idea to get the basics, but people often trade differently when they are not using real/their own money. For this reason, some sites such as IG Index offer good alternatives where they make the minimum bet size smaller for new account holders, meaning you don’t need to put so much on each bet during your first few weeks trading.
- Don’t Put All Your Capital At Risk It’s wise not to put all your capital at risk. Especially avoid putting all your capital into one spread bet. If a spread bet goes against you, you want to be able to recover from it. A good rule of thumb is to never invest more than 5% of your capital into one single trade.
- Write Down Your Plan – And Stick To It As simple as it sounds, it’s worth writing down the plan for your spread bet. Write down your entry and exit prices, also note why you are buying into the bet in the first place. It’s important because without a clear plan and reasons as to why you are entering your trade, you will likely exit your trade too early for fear of loosing what profit you may have already made. Be confident in your plan providing you have done your research.
- Take Your Time There is no need to rush into opening a position! There will always be other opportunities and it may be a matter of finding a position and monitoring it or placing an order to open at a certain price.
- Setup and Monitor Stop Losses With any trade you place, you’ll have the ability to put what is known as a ‘stop loss’ in place, which will automatically close out your bet should it go against you, at the price you pre-select. This is greatly beneficial, especially for new traders. It is worth noting however that during early morning trading, spreads will be at their largest, and you could end up being kicked out of a bet due to this factor. For this reason, you may need to monitor your stop losses at the end of the day to ensure that you will not be kicked out when morning trading starts.
- Get The Best Possible Spread When you make a spread bet, you wan’t to take the smallest possible spread available. The smaller the gap between the ‘Sell’ and ‘Buy’ price, the less the market has to move before you are in profit. This means either having a couple of accounts with reputable spread betting firms so you can choose the one offering the smallest spread, or knowing the right time to place a trade. Overnight trades for markets such as the FTSE that run 24 hours will have a bigger spread (between 5-6) than it will during the day (usually 1). For stocks and shares, avoid trading as soon as the markets open, as the spread will be at is largest while the previous nights orders are being processed.
- Focus Your Trades When you are first start, don’t over trade but rather focus your efforts on a few select markets getting to know them well. Try to avoid volatile markets when first starting out.
- Ignore The Rampers / De-rampers If you’re a member of any financial forum, you’ll notice that the forums can be very busy with lots of people all giving their expert opinions. Sometimes these can just be the personal opinions of the odd invidiual who’ll actually contribute something useful that might help you see the market form a different perspective. Other times they can be a collective effort from various people to try and pursued other people to buy/sell the share in the hope it will move in their favour. For this reason you’ll often see people sign off with ‘DYOR’ which means ‘Do Your Own Research’, which you should never forget to do. Don’t invest your life savings on the whim of some excited person promising the share will go x10 within a year.
- Don’t Take It Personally It’s inevitable that you will loose money at some point on a spread bet. Never take it personally, and don’t try to chase your losses. Keeping a strong head and leaving your emotions out of it is important. Stick to your original plan and don’t become overly attached to a stock or share. Accept when a bet is not going your way. Take a look at why you lost the spread bet and try to learn from it. What factors did you not account for? Fact is, you win some, you loose some, that’s they way it goes, but hopefully you will win more than you loose over time.
- Choose A Reputable Spread Betting Site As with any other website you make financial transactions with, ensure it is one with a good reputation. A simple search on the internet will usually reveal if the site is what it claims to be. For Spread Betting sites, ensure that they are regulated by the Financial Services Authority as this will give you protection in the unlikely event the spread betting firm gets into trouble.