Spread betting is a tricky field to navigate through. Technically it’s gambling, which means risk is high no matter what it is you choose to bet on. Make it easy on yourself by using the following six spread betting tips.
Understand the Market
It goes without saying, but you should never go into a bet without understanding the market you are getting involved in. The very best traders are able to both understand and identify what influences and creates market movements. They analyse everything from economic data to company performance, making sure that the decisions they make are well thought through. Don’t enter the spread betting field blind, as it will lead to disaster more often that not.
Be understanding of your financial situation before you start spread betting. It is easy to get caught up in the moment when spread betting, but you should resist this temptation. Don’t put yourself into a position where you end up overtrading and spending beyond your financial means. Doing this will put you at serious risk, so always be sure that you aren’t stretching yourself too thin when spread betting.
Know When to Cut Your Loses
It doesn’t matter how good at spread betting you are, not everyday is going to be a winning one. The key to success is when on those rare losing days knowing when it is time to cut your losses. When amidst a poor run of form it is easy let one loss run onto another, but this is a dangerous attitude towards risk. Get out of loss making positions early and cut your losses before they escalate, don’t try and break a losing streak by simply ‘hanging in there’.
Use Risk Management Tools
Spread betting without a safety net is a foolish move. Before entering the market familiarise yourself with risk management tools, specifically stop losses. They can protect you against large losses, by automatically pulling you from a position if it takes a sharp downturn. Employing stop losses should be considered a must no matter what level of trader you are, even if your broker will charge you a small fee for their use.
Emotion can take control of a trader’s actions when spread betting and the outcome of this can be disastrous. Impulsively betting on a company can lead to poor decision-making. Even though it is tempting to act on these ‘gut feelings’, you should never stray from an established trading plan in order to do so.
One of the biggest mistakes many novice traders make, is that they choose to spread bet within a single sector. Putting yourself in a position where a single market determines your success within spread betting is foolish and unnecessarily risky. Always make sure you have your hand in various pies at any one time and remain diverse. This is because if one sector falls, others can pick up the slack and cover your loses. Don’t put yourself in a position in which you can lose it all should one sector be hit hard; embrace diversification instead.