Spread betting is difficult and even the best traders sometimes get it wrong. The key is to learn from your spread betting mistakes so you do not make them again. Finspreads takes a look at some common trading errors and how to avoid them.
Spread Betting Tips: Mistake 1 - Not Understanding Leverage
In financial spread trading, only a percentage of the total value of your trade – the margin – is required as a deposit in order to open a spread betting position. This allows you to leverage your profit (and loss) potential by increasing your exposure to an underlying asset with the same initial investment.
This creates the possibility of spread betting losses that are significantly greater than your initial outlay. Understanding leverage and the true value of your trades means that you can manage your potential downsides more effectively.
Spread Betting Tips: Mistake 2 - Not Having a Spread Betting Strategy
Spread betting can be emotionally draining, particularly if you do not have a defined profit and loss strategy in place for each trade you make.
By outlining where you wish to cut losses and let profits run to beforehand, a spread betting strategy helps to eliminate the possibility of impulse trades. You don’t want to end up in a position where you open or close a spread bet prematurely or belatedly without thinking it through.
Spread Betting Tips: Mistake 3 - Not Knowing the Market
Being familiar with how a particular spread betting market moves, what affects those price movements and exactly how volatile it is can make a huge difference to your trading. It allows you to react quickly and correctly when relevant news emerges.
For example, if an investor does not know that a spike in crude oil prices would raise airline costs, they could be fighting a losing battle if trading British Airways shares.
An added benefit of solid spread betting research is that it helps you to work out where to place your stop losses.
Spread Betting Tips: Mistake 4 - Not Using Stop Losses
Risk management is of paramount importance in spread betting. By using guaranteed stop loss orders, you can ensure that you never lose more than you are willing to without capping your profit potential.
Spread Betting Tips: Mistake 5 - Not Continuing with Spread Betting Education
Even seasoned spread bettors can keep their trading skills sharp by looking for new ways to maximise their spread betting potential.
From technical analysis to candlestick patterns, Finspreads spread betting seminars are designed to expand your knowledge of how to analyse the financial markets whatever your level of spread betting experience.
Spread trading carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.
Article provided / approved by Finspreads which is a trading name of City Index Limited ('CI'), which is a spread trading and contracts for difference ('CFD') provider. CI is authorised and regulated by the Financial Services Authority, Firm Reference Number 113942.
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'Spread Betting Tips: Avoiding 5 Common Spread Betting Mistakes' edited by DB, updated 08-Nov-10
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.
