What is spread betting and how do I approach it successfully?

The popularity of spread betting is growing, but before you launch into it head first it’s important to understand what exactly is spread betting, and how to approach it successfully. Simply explained, spread betting allows you to speculate and bet on the movement of many different financial markets (for example bonds, stock and currencies), irrespective of whether the markets are rising or falling. This way, you’re able to make either a profit or loss depending on whether the market moves in your anticipated direction. There are a number of reasons that make spread betting more attractive (even to a trading novice), ranging from not needing to to buy the underlying asset to only needing to put forward a small deposit to open your position, both of which make it far more affordable than other methods of trading.

So now you have a better idea of what spread betting is and how it works, let’s discuss in detail things to keep in mind that will determine a successful and unsuccessful investment. Please do be mindful though that as with all investment it’s wise to seek independent advice from an established individual or company before getting started to ensure you have an indepth understanding and to minimise your chances of loss.

Learn to trade small When you start out in spread betting, don’t be charmed by thought of big money. It is far better – and wiser – to start small, otherwise you stand to make losses. If you’re wanting to keep your finances intact (or better yet, better them) then be sure not to bet too far on any trade. As well as starting small, learn to be smart. For the first few months restrict yourself to trading only small positions.

Be intelligent when varying trading size Don’t always place the same amount on your bets each time you trade, as this, while it may seem sensible, is actually an irrational way to trade. Vary your bet according to whatever information the market is giving you at that particular time. Make sure you only bet with a little amount, especially when the risk is high due to high stop loss. However, if the risk is low due to a smaller stop loss then you can bet with a higher amount. Applying this simple intelligence will improve your chances of making a good profit – and limit your chances of loss!

Give close consideration to cost Costs may look like nothing to you, but believe me – they are far more important than you think. To thrive at spread betting you must know how to control your profit and loss – and your cost. Trading cost is comprised of two parts; commission and bid-offer spread. Commission in this instance isn’t a consideration as spread betting doesn’t charge commission – one of the many reasons it appeals to the more frugal trader. The real damage comes from the bid-offer spread, and it’s hugely important to keep close eyes on total cost.

Profit and loss are entirely different from winning and losing Profit and loss are dependant on how much the trader makes on each winning trade versus how much he or she loses on each of the losing trades. If a trader loses about 70 percent of the time in spread betting, the average loss at those losing occasion is about $100. However, the trader makes money 30 percent of the time and the amount he or she makes in profit within this short period is up to $400. In spread betting, such trade is termed as successful, despite the fact that they’re loses 70 percent of the time! See – it’s not about how many times you win a trade, but your percentage profit in total. Another way to phrase this would be that it’s not about how many times you’re wrong but the extent of profit you make each time you’re right.

Never forget to use stop losses Many traders think that they can survive the murky waters of spread betting without using a stop loss. Don’t fall victim to this naive way of thinking. “More money had been lost by people not using stop losses than all the other reasons put together” so goes a famous market quote – learn from the mistakes of others! Stop losses can be frustrating, especially when they stop you out at the low of the price movement, but they can help protect your account from losing up to 20 percent or more in a single trade, which is arguably worthwhile. So, to stress, whenever you enter a trade, make sure you use a stop loss.

And lastly – patience is the key! To make it well in spread betting, you have to be very patient, and it may be worth asking yourself if you possess this quality before entering into spread betting. If you’re patient enough, you’ll find that you end up making far more profit than rushing into rush a trade that may well end up as a losing trade.

Hopefully you now have a better understanding of what spread betting is, it’s strengths and weaknesses and important considerations to keep in mind should you want to succeed in spread betting. Please do be mindful that spread betting is a leveraged product and does carry a high level of risk to your capital. Be sensible and ensure that you understand the risks and seek independent advice before starting out.

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