Spread Betting Tips

1. Don’t leverage to the sky

Remember that you are trading on margin, and if you use it to the limit, your losses can be much higher than you can afford. Engaging in too much leverage can result in you having to put additional money into your trading account. There is no universal optimum level for leverage and you should decide what best fits your situation. Are you having trouble trying to sleep at night? Then you’re using too much leverage and you should seriously consider reducing your exposure.

2. Don’t rush in to trading

Spread betting may be exciting like gambling is, but there’s no need to rush to get started. Most companies offer you a demo account, or at least offer a virtual tour through their software. Take that opportunity to learn before risking real money.

3. Keep each individual trade small one position

Just because you have found a high conviction trade doesn’t mean you should go all-in on it. Many traders limit their trade size to 2% of their trading bank. In other words they will never allow a trade to cause them to lose more than 2% of their spread betting account. You should also consider opening several positions to reduce your risk. Note however that if all your positions are in similar asset classes, then you aren’t really reducing your risk.

4. Protect yourself with Stop-Loss orders

When you open a position it may seem not important but you will thank yourself later. Tick the stop loss button and choose a price, when placing your order. This way you decide beforehand how much you are willing to lose, and if the market moves against you, the position is closed avoiding you a headache. It is possible to use guaranteed stops at some brokers, although at a cost. In some volatile and/or illiquid markets, it may be the best route to follow.

5. Define your exit plan

Even if you decide to not place a take profit order at the time you open your position, it is advisable that you have an exit plan for it. You should decide on a strategy to take profits and stick to it. Theoretically, potential profits from spread betting are unlimited, but in practice you will need to sell at some stage. Remember the trading maxim - Nobody ever went broke taking a profit.

6. Don’t add to a losing position

Just accept your losses. There is a point at which enough is enough. Sell your position and take losses, or maybe define a point at which you should do so by using stop loss orders. Adding more to a losing position is a common mistake that gamblers do. It is like doubling your bets in red-black in roulette hoping for your colour to come up finally.

7. Do not overtrade

Novice traders tend to place too many orders in different markets that they even don’t understand. Although financial spread betting is commission free, there is a buy-sell spread which can become expensive if you overtrade. Every time you trade you incur in a cost. Too much trading will enrich the spread provider, not yourself. And, for the sake of your wealth, know your market before trading.