Spread Betting Strategies

Financial Spread Betting can be an exciting activity, especially when you’re winning. But it can rapidly become a nightmare if you throw in your money as if it were some kind of roulette, and your number doesn’t come up. In a casino, luck is everything, but in financial markets luck is just the icing on the cake. An educated approach towards financial spread betting is essential to maximise your chances of profiting.

In order to succeed, there are some do’s and don’ts that you should look at, and maybe post-it in your desk to remember them at all times.

- 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. Not using any leverage is not wise also. There is no universal optimum level for leverage and you should decide what best fits your situation. Are you having problems to sleep at night? Then you’re maybe too levered. Just reduce your exposure.

- Don't be in a hurry to start trading

Markets are there for you to trade, and they will stay right there in the foreseeable future. Spread betting may be exciting like gambling is, but don’t hurry up yourself. 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.

- Don't put all your eggs in one basket

You know the story, if all eggs are in the same single basket and you drop it, you will most likely lose them all. Try to diversify your positions. Just because you believe something will rise, it does not mean you should risk everything on it. Such behaviour can ruin your bank very fast. You should open several positions to reduce unnecessary, diversifiable risk. Note however that it is not just a matter of adding assets to your portfolio. If all investments are highly correlated, you will end up with the same level of risk.

- Don't Gamble

Remember that stock prices are not random like lottery and roulette numbers. They can follow some pattern and are certainly influenced by fundamental data like earnings, dividend policy, stock repurchases plans, and any company and economy news. You should know your market and its value drivers before placing any purchase. Do your homework beforehand, and risk your money only after.

- Do use stop loss orders

At the time 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 an 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.

- Do use take profit orders

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 I never saw that. So, have in mind that it is better saying I could have profited some more than saying I could have profited.

- 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.

- Do not overtrade

Novice traders tend to place too much orders and in many different instruments that they even don't understand. Although financial spread betting is free from commission, there is a buy-sell spread that is equivalent to that. 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.

The above do’s and don’ts will not necessarily make you rich, but they can avoid you costly mistakes, and equip you with the necessary tools to safely climb the mountain of financial spread betting. Know what you’re doing, design a plan, stick to it, and protect yourself. That’s the path to profit.