How To Reduce Your Spread Betting Fears
Novice Traders Can Make Money if They Learn to Minimise Risk
Jul 28, 2009
Gathering knowledge about a subject can make it seem less daunting. The good news is that when it comes to spread betting, there is a wealth of great information to be had, much of it free. There is a warning that always comes up when spread betting is mentioned, and it's true that this warning needs to be heeded.
The Risks Of Spread Betting
However, some people don't get beyond that warning because they don't want to lose their shirt. They take it no further, falling at the first hurdle. Surely it makes more sense to look into it a little further before giving up. There is, after all, a lot of money to be made. There are plenty of books on the subject, but there are also some great Internet tutorials, static and on video.
Trading Tutorials
Most spread betting platforms are big on education. They want people to trade, what's more they want people to win. IG Index has an excellent education pack. It can be read online or sent out by post. The latter is much nicer as it is well designed, simple to understand, and can be read at leisure. Shorts&Longs also do a good pack. Just getting a proper grip on what spread betting actually is takes a big part of the fear out of it.
Taking as much risk out of it as possible is the real secret to successful spread betting.
Rules Of Managing Risk
As any seasoned trader will explain, there are some basic rules to risk management:
- The first is, traders should only risk a fraction of their account at any one time. This is where the idea of leverage comes in. Do not abuse it. Someone who gets wiped out on one trade is history. So, risking only what can be comfortably afforded, about 1 to 2% of the account, is about right.
- Next, set a stop loss and stick to it. Automate it if possible to take away the temptation of hanging on to a losing trade.
The Mistakes Beginners Make
A classic beginners' error is to over-trade. It's fun to be in the market, but remember, the point is to make money, not play a game. Placing too many trades makes them hard to keep track of. This problem is exacerbated if the trades are placed in too many different markets at the same time. It's common sense when you are starting out not to spread yourself too thin.
Spread Betting Strategies
Pick a strategy, any strategy, and stick to that too. When the reason for being in a trade is no longer holding true, it's time to get out of the trade, according to the rules of the chosen strategy. Have some faith in the strategy. If it's a five day strategy, for example, stay with it (so long as the stop loss is in place).
Stock Market Fundamentals
Taking profits too soon is another reason for not making money. That and staying in a losing trade too long are rookie mistakes.
Finally, charts are great, but pay heed to the fundamentals too. If nothing else, it ensures any lessons learnt from mistakes stick in the memory.
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