Spread betting offers excellent opportunity to the investor, but is not something that you should enter into lightly or half-heartedly. There is the potential to make money, but there is also the potential lose money, and only through thorough research, careful consideration, and honing your trading skills can you hope to turn a long-term profit.
Whether this is the first piece you have read on spread betting, or you have implemented a few trades, below are some tips to help ensure that you have the best possible chance of making a profit or, at the very least, minimising your losses.
Do Your Research
Ensure you understand the fundamentals of spread betting before you embark on making any trades. There are many markets that you can trade, there are many opportunities within each market, and even the practice of spread betting itself can be confusing. If you jump straight in, whether on a whim or because you have solid information, without understanding the market and the spread betting techniques you will need, this is the quickest way to financial ruin.
Paper Trade
You will need access to a trading platform, and even user-friendly and intuitive platforms, such as ETX Capital, can seem baffling at first. They contain information ranging from the most recent charts to the latest news feeds, and considering the extensive range of markets that you can trade, this means there are potentially thousands of pieces of information that you will have to sift through. Fortunately, most platforms also offer the opportunity to paper trade, which effectively means using practice money so that you don’t have to risk any real money until you are ready.
Specialize Before Expanding
The sheer number of markets that are available to the spread bettor means that there is excellent opportunity, and it means that you can trade on any market of which you have a deep understanding. However, it also means that it is very easy to spread yourself too thinly. Concentrate on a market that you really understand, and only consider expanding once you have mastered this market, and only if you have reason to do so. Perform the same due diligence on any market you intend to expand into, as you did with your first market.
Get In Quickly
When it is time to trade, whether you are trading on economic releases or on trends, one of the key factors that will determine the level of profit potential that you have is how quickly you initiate a trade. If you wait too long, the opportunity may have passed or, at the very least, you will lose some of the profit you could have walked away with.
As soon as you see and confirm a viable trigger, take action.
Get Out On Time
As well as having a clearly defined entry point, and being prepared to act on it straight away, you need a similarly clear exit point. This could mean closing a trade in order to minimise losses, or it could mean closing out in order to protect your profits. Markets are volatile, and if you hang around in the hope of squeezing a few more pence profit, or you hang on to a trade in the hope that you can turn a loss around and bounce back, you stand to lose out one way or another.
Limit Your Stakes
No matter how confident you are of your opening position, don’t get carried away with stake size. The quickest way to lose all of your investment bankroll is to invest it all in one single trade. Have a staking plan, as well as an investment plan, and then stick to it. Only even invest what you can afford to lose, and do ensure that you get in and out of trades according to your triggers.
Accept That You Will Make Losses
Loss is inevitable with any trading strategy and any market. Prices rise and prices fall, and there is no such thing as an infallible system. If there were then it would be exploited to such an extent that it would become useless. Losses are inevitable, so don’t be afraid of them. Make sure you have the bankroll to cover a loss, get out of a loss making position as soon as possible, and move on.
Manage Your Risk With Stop Losses
Minimizing loss is as important as maximizing profit, and one of the biggest mistakes that traders make is to hold on to a stock or trade in the hope that it will bounce back from a loss. While this can happen sometimes, it is just as likely that the position will continue to get worse, and this means that a small and manageable loss can quickly become a bank breaking and heart breaking, substantial loss.
Check Your Charts
Whether you are a trend trader or not, you should be prepared to learn about and master the use of charts. Always refer to them in order to make sure that you aren’t blindly entering into a trade that has no chance of turning a profit. Charts can seem complex and complicated at first, but this is where research and paper trading will prove especially useful to your spread betting plan.
Don’t Deviate From Your Strategy
You should have a trading strategy that, at the very least, identifies possible trades. Ideally, you will have a clear strategy that not only highlights possible trades but that gives you entry and exit points, offers stop loss points, and even determines the size of position that you should take. Use your strategy, have faith in your strategy, and stick rigorously to your strategy.
Refine, Learn, And Improve
Do, however, keep track of your strategy. Once you have substantial amounts of data, you can look at results, see whether there are any improvements that can be made to your strategy, and you can then paper trade your new and improved strategy until you are confident that it will offer better long-term results than your existing strategy is providing. Don’t change your strategy for the sake of it, but don’t be afraid to concede that a strategy isn’t working, and look for ways to turn things around.