x. Whether the chosen markets you are trading on are rising or falling it is possible to make a profit through spread betting.
By speculating on price movement you can either go long (buy) or go short (sell), whereby your profits rise in line with any increase or fall in price respectively. Spread betting is a leveraged product so there is a risk of losses exceeding deposits, which is why to stay safe beginners should follow these three rules.
- Trade small positions
When starting out spread betting it is important that you begin by only trading small positions to get a feel for the practice. If you don’t fully understand spread betting and go in blind with a large position then a lot of money can be lost in a short period of time.
A good idea is to set a maximum trading size, of around £1 or under a point to avoid losing out too much if it all goes wrong at the start. Many people can get excited and carried away if one spread bet is successful and start ploughing more money into further spread bets but it is important to stay in control and not get carried away.
- Consider the costs
Aside from the actual money you place on a spread bet, there are a number of other essential costs involved which you must take into consideration when budgeting. Holding costs may be applied to positions held in your spread betting account, positive or negative, at the end of a trading day.
The bid to offer spread also has to be factored into your budget along with another hidden spread betting cost. A ‘cost of carry’ charge can be applied to some longer spread bets and depending where you place such spread bets you may be charged commission as well.
- Use stop losses
Stop losses are a vital tool, especially when trading forex, and can be used effectively in the same way when placing spread bets. Sure, they can be frustrating at times when stopping at the low end of a move, but they will more often save you great losses.
It is often said that the best traders are those who know when to take a loss, and setting stop losses is the best way to do this. Always use one when entering a trade to prevent losing 10% or more of your account in one trade.
Are you considering a career in finance/trading? Do you have any tips to share? Let us know below.
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