Spread Betting for Beginners: Eight Top Tips for Successful Trading

Sun, Feb 21, 2016

Investment

For those with a desire to make the most of their money, spread betting can be an ideal investment option. Exciting, fast paced, and potentially very profitable, it offers a wonderful way to bolster your bank balance without requiring huge funds to help you get started.

Like all investment options, however, it carries a high degree of risk, and the best way to negate this is by educating yourself on the art of trading. To make sure that you get off to the very best start, here are eight top tips to help you line your pockets…

Top Tip 1: Start Small

One of the most common mistakes made by inexperienced investors is overly ambitious trades. So much capital is needlessly thrown away because novice traders don’t understand what they’re doing, so it really does pay to educate yourself before you start playing with the big boys.

One of the best ways to gain this knowledge is through practical application, so don’t be deterred from trading altogether. Rather, keep the amounts you invest to a minimum, and try limiting your trading sizes to a maximum of £1 per point for the first few months.     

Top Tip 2: Understand that Every Trade is Individual

Another point that you ought to grasp early on is how varied trades can be. This means that flexibility is essential to the successful trader’s tactics, and that the amounts you bet should vary from trade to trade. As a general rule, start by assessing the level of risk, and if you find that this is high, keep your betting amounts low.

Conversely, if you find that the risk is low, this is the time to trade aggressively. If you can learn to read the markets and trade accordingly, then you’re already halfway towards success.  

Top Tip 3: Keep an Eye on Your Costs

Learning to trade successfully isn’t solely dependent on learning how to turn a profit. Indeed, it is just as dependent on mastering how to keep your costs to a minimum, as the less you spend on your trades, the greater your profit margins will be.

This means that it’s imperative to keep a tally of the costs of your commissions and bid-offer spreads. It’s handy to set a maximum amount to spend each day, in order to limit your overall losses should fortune choose not to favour you.  

Top Tip 4: Profit is Your Primary Objective

Many experienced spread betters will warn you that it’s all too easy to become caught up in how often you’re right, but it’s important to realise that this is entirely irrelevant in the world of trading. It is of no consequence if your trades fail 90 per cent of the time, provided that you can turn a profit overall.

The worst thing that you can do is panic and begin to trade reactively when things don’t go your way, as all that really matters is that you stay in the black. Keep calm, look at your profitability objectively, and understand that nothing can harm your trading so long as you’re making more than you spend.   

Top Tip 5: Use Stop Loss Orders

One of the most commonly cited trading quotes is this: ‘More money has been lost by people not using stop losses than all the other reasons put together.’ There is a reason that these handy instruments are known as the ‘trader’s best friend’, and it’s because they could prove to be your salvation when everything goes awry.

Spread betting is not without its risks, but stop losses are the most effective tool for limiting the degree of danger that you face. If you want to make sure that no single trade can damage your account beyond repair, then take advantage of them at every available opportunity.  

Top Tip 6: Remember that Patience is a Virtue

In his book Reminiscences of a Stock Operator, famed speculator Jesse Livermore attributes most of his trading success to his ability to remain patient and do nothing. Reactive trading is dangerous, and you’ll often find that your decisions are most objective when they’re still theoretical i.e before you actually make them.

Once a move is in motion, leave it to play out, trusting that your stop loss order will limit your damages. In the same vein, never make a move simply for the sake of it; instead, wait until a suitable opportunity arises, and only seize it if you believe that profit is almost guaranteed.     

Top Tip 7: Don’t Underestimate the Complexity of Spread Betting

Once you begin trading, you’ll soon come to realise that spread betting is not an easy nut to crack. It has never been, and will never be, your ticket to easy riches, and it takes a lot of time, talent, and effort to grasp its many complexities, and gain the experience to understand how truly complicated it is.

If you want to learn how to do it properly, then you’ll need to commit to putting in the work throughout the entirety of your trading career. Should you fail to do this, or not afford your trading the amount of time it requires, you’ll soon discover that the one thing it does provide an easy path to is losses. Take the time to do it properly, or else give it a miss altogether.  

Top Tip 8: Master Your Emotions

As we’ve already mentioned, trading reactively can be incredibly damaging to your spread betting strategy, and this means it’s essential to master your emotions whenever you make a move. Ultimately, the markets are driven by people’s fears and ambitions, and in order to manipulate these to your advantage, you need to be entirely objective.

The most effective way to achieve this is by guarding yourself against ruin. You never need to open yourself up to disaster, and the best way to avoid doing so is through some simple strategizing; put simply, ensure that no single loss has the ability to damage your account beyond repair, and then you have little need to worry about the outcome once it’s in effect.

To trade successfully, consider these steps and see if you can integrate them into your strategy.      

 

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