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Learning to Trade: Financial Spread Betting

Most spread traders tent to get caught in the hype. What software to buy, which indicators to use, what trading books to buy, what trading seminars to attend…etc When really the key to successful spread betting is to learn how to spread trade, understanding your psychology and risk profile, and having a solid trading plan that you act upon on a consistent basis.

In this respect a great way to learn how to trade the stock markets is to risk money you can easily afford to lose. I ‘paper traded’ forex years ago, and found that unless the money was ‘real’, it had an effect on your decision making. The reason lots of people have heard horror stories with spread betting is that many people tend to dive in without really knowing what they are doing and end up losing their money. There is a statistic thrown around that only 20% of people are successful spread betting in the long run.

In terms of your learning you still need to use the same strategy as you would with buying the actual shares. But instead you are betting on the price movement. As I said you can bet up or down which is long or short.

Advice for Spread Betting

The key to spread betting successfully is the same as playing most any other gambling and speculating. In order to place a bet that has a reasonable chance of winning, you have to employ your knowledge about the game and/or the market and be smart about your betting.

Do Some Research

One of the key components of any type of successful gambling is self-discipline, especially with regard to research.

Punters often depend too much on what they think the result will be without checking out the latest form, statistics and/or numbers on the game or financial instrument/market they are betting or speculating on.

Although you still stand a high chance of losing – after all, that is the risk factor involved in gambling and the higher the reward, the higher the risk – you can greatly improve your chances of successful spread betting by avoiding falling into sloppy habits.

If you are placing a spread bet on a particular share in the financial market, don’t only depend on how much a company’s share price usually trades for. Do some research on the latest numbers, including recent trades and recent financial results, and what is happening in related markets, and then make an informed decision.

If you are spread betting on a horse race, for example, don’t simply choose a winning time at random. Do some research on the average times for the track the horses will be running on and then consider other factors, such as the track conditions and the previous performances of each horse at that particular track.

Risk Warning

Spread betting can be very rewarding and produce large returns on small stakes. Basically the more you’re right, the more you win. However, the opposite may also be true. The more you’re wrong, the more you potentially lose. The profit or loss is determined by the difference between the final result and the level at which the bet was originally made, multiplied by the stake that you nominated. In some volatile markets, such as cricket runs, your profit or loss can escalate very rapidly.

  • Work out the worst case result you are willing to accommodate whichever way you decide to bet. Limit your stake within this scenario. Remember to check whether there is a maximum result for your particular bet.
  • Where possible, keep a careful eye on the event on which you have placed the bet, and be prepared to cut a loss if the bet is going against you.
  • Recognise that some sports betting markets are more volatile than others (i.e. the final result could be a long way off from the original quote).
  • Always remember that you may lose more than your original stake.
  • Consider using a Stop Loss position so that you can benefit from a cap on the amount that can be lost. Familiarise yourself with the stop loss rules; they can limit your winnings, limit the size of the bet if it was to expose you to excessive risk, or in some instances cause a bet to be refused.

There are several companies you can use. IG Index and CMC Markets are well known but I think their spread is a little larger than other companies like Ayondo. You need to just google spread betting. You can probably find more information than I have given you obviously.

Sometimes you do encounter issues with spread betting – for instance I cannot trade a particular security because its market cap is too small for IG Index . I’m also occasionally unable to trade on certain shares with IG as they apparently limit their exposure to certain shares, so I cannot buy until someone else sells.

For instance I was confident enough with Gulf Keystone to trade with stops at £50/point. Last week I closed a trade in GKP (Gulf Keystone), taking a bit of profit on some earlier news. When I tried to get back on board, it was ‘closing trades only’ online. Really, really hacked off. £2800 would have been a nice little bonus to wake up to this morning. But, I’ve not lost any – just not made some. Still a bit gutting though! Live and learn.

For my longer term trades (i.e. weeks/months) I use larger size trades. I have trailed my stops manually to lock in profit. I have also used Ayondo….both seem ok but I believe that with all spread betting sites you sometimes tent to be re-quoted especially in fast moving markets.

Just one parting warning call with spread betting, make sure you have sufficient capital in your account as otherwise if your bet goes against you the spreadbetting company will close out your deal.

Spread betting and CFDs are revolutionary products that allow risk management strategies unavailable with any other trading instruments, although each broker varies in this regard so you need to use the appropriate broker for the type of strategy you are looking to achieve.

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