In this article, we present some spread betting tips which every spread bet trader (especially beginners) should know. There are several overlooked nuances that can affect a spread bettor’s performance. Spread betting is not betting in the true sense of the word. So what has been done in this article is to provide traders with spread betting tips to enable them succeed in the market.
Spread Betting Tips
- Understand the Market and What You Are Trading
Spread betting is performed in the financial markets and the sports industry. What drives betting events in the financial markets are very different from what drives betting events in sports. Therefore, you should decide within yourself if you want to bet on financial markets or on sports. A component of this decision should be driven by your knowledge and understanding of both markets. Why would a person who routinely trades stocks of tech companies suddenly decide to bet on the Cheltenham Gold Cup, even when he probably has no clue as to what that tournament is all about?
If you have traded tech company stocks in the stock market, you will find it easier to adapt to spread betting the same assets. It is just a natural thing to do. At least, you would be familiar with the drivers of price movement and you will be more at home with these stocks.
Therefore, a good spread betting tip is to understand the market and the events that you will be trading. Know the individual characteristics of the assets being offered.
- Do Not Use More Risk Than You Can Manage
Spread betting is a leveraged activity. This means that you need to have a particular sum of money in your account as collateral for trades. This is known as margin. You should only open the number of trades your account can handle. Over trading refers to a practice of opening too many trades at one time. Any trade opened increases the margin requirement for your account. If too many trades are open, you may have an issue with controlling risk.
Over trading prevents traders from recovering from bad positions, and denies them the opportunity to take advantage of better-looking setups. You need to have only as many positions as you can handle, as well as not tie up capital so you can reserve some of it for newer trades that can bolster the account capital.
- Don’t Lock Up Margin Capital Bad Trades
Every open trade takes up a portion of your account capital. This reduces the ability to put on new trades without increasing the level of risk. If a trade is hopelessly bad, cut it loose and get back your ability to take on newer and better trades within acceptable risk levels.
- Control Your Risk with a Stop Loss
In spread betting, losses are not restricted to the invested amount, so it is important that there is an exit strategy for bad trades. One of such strategies is the use of a guaranteed stop loss. A guaranteed stop loss is an order to the broker to automatically close the trade at a pre-set price, irrespective of market conditions.
Guaranteed stop losses also protect you from market gaps. A market gap can be a good thing if it works in your favour. But if it goes against you, it can be nasty. Market gaps are a regular occurrence in the financial markets, especially after the weekend following a volatile week, or if you are trading index assets, they can occur daily. Ordinary stop losses will not survive market gaps, which is why the guaranteed stop loss is necessary to protect you in such instances.
A guaranteed stop loss helps to prevent any excessive slippage from knocking out your positions and your entire trading capital.
- Be Disciplined
Stick to your trading strategy, no matter what happens is a hallmark of successful spread bet traders. Disciplined traders do not get into and out of positions prematurely and haphazardly. Discipline means taking the emotions out of trading.
- Spread Your Risk
Trading several markets is a good way to spread your risk. An alpha trader once said, “there is always a bull market somewhere”. In a nutshell do not be hard and fast about trading one asset or one market. If there are clearly no opportunities in that market, try another better performing market.
- Train with a Demo and Low Deposit Live Account
Boxers have training gyms and sparring partners. You should too. Your gym in this case is your demo account and your sparring partner is a live account with a small amount of cash. After you have practiced, tested strategies and had a feel of the market with a demo account, you need to go live with a small amount of money to see what real money trading is all about. This builds confidence and teaches you how to succeed under market conditions.
Following these spread betting tips will put a trader in a better position to make money in the spread betting market.