Risk management makes or breaks spread betting, but it can also be an area where beginner traders are likely to make most of their mistakes. It is hard enough to make money from spread betting, reading the charts and predicting the correct market direction, without making mistake with stops. If you buy a stock the maximum you can loose is the cost of the stock – it’s not geared. Whilst all investment involves an element of speculation (i.e. gambling), spread betting is even more speculative than, say trading in silver if you are careless. The thing is you can end up losing substantial amounts very quickly if you find yourself on the wrong side of a major market move.
However, just because it’s geared doesn’t mean you have to gear it. If you had only £10,000 to invest, you could for example, buy the same £10,000 with the margin. You can also control the risk with stop losses, that doesn’t make it any more speculative than buying a stock. The trick with being successful in spread betting is not how often you get it right or how often you get it wrong, but making sure you make money when you do get it right than when you are wrong. Risk management is the one place where newbie traders tend to keep failing. The problem is most spread traders are able to predict the market direction more than 50% of the time but the profit they make during such periods is smaller than the losses they suffer on bad days. So losses even if they happen to be less frequent tend to be much larger.
How much to risk on each trade? Many traders have different opinions on trade management but usually most suggest that this should not be more than 2% to 5% of your trading capital. This ensures that you don’t blow your entire account in a few bad trades but also help to remove the emotions out of trading. The next step is to determine your risk-reward ratio and setting appropriate stop order to mirror this. Again, there are different opinions on this with some saying that profit-to-loss should be balanced 3:1 while some bring that down to 2:1. What is important however is to have this planned it into your trade.
The art of preserving one’s trading capital and learning from common mistakes can be underestimated. When placing stop losses into your spread trader, make sure they aren’t too tight – you need to allow for the normal day-to-day market movements. This is all about remaining in the game because if you keep getting stopped out due to too-tight stop losses, you will steadily eat away at your account balance and empty your spread betting account bit by bit.
Successful trading is all about discipline and getting rid emotions that could interfere with your trading mindset. A good way to help you achieve this is by keeping a trading diary. Even before you trade spreadbetting and start executing trades, write down where your stop loss level is going to be, and where your take-profit level will be as well as the reason for taking each trade. This allows you to look back on your past trades and see what you’ve done wrong and what you are doing right and it is probably a good way for a beginner to start and should help you not to overtrade. Some spread traders think that they need to be holding positions all the time but this is both wrong and dangerous. You should only trade when the risk-reward ratio is especially favourable and sometimes the best risk management strategy is not to trade at all. A good trader knows when it is time to stay on the sidelines and let the markets carry on without him.
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Trading for spread betting is done in the financial markets where trading is common. The financial spread betting trading is done online usually as the trading is done in real time in front of the live feed from the financial markets worldwide.
Trading is a common phrase for financial trading, in financial spread betting you can trade all kind of financial products. A financial product is considered to be either a commodity or something with a virtual value like gold and silver. Trading oil is not really actively participating in oil trading (this is one of the best things about financial spread betting or forex) you trade the virtual value and actually place a bet on the future value of the traded financial product.
Trading for spread betting is available in most spread betting platforms which offer financial spread betting around the clock. The trading is available during weekdays and closed on weekends.
The profit of a trader is from beating the spreads or guessing the trend of the value of the financial product before it happens. To trade spread betting is not like actually owning a product you simply relay on it’s virtual value. It’s not like you are a stock holder and you are invested in a stock – in spread betting you simple place a bet on the stock value and try to bet on whether it will go up or down in value. This is the main reason spread betting has no effect what soever on the financial market, it’s merely a game – gambling that is.
If you are for trading for financial spread betting and want to get to know the financial market better, financial spread betting is the way to do so – you can risk very little money and actively participate in the market trade.
There are plenty of companies offering trading for spread betting which gives you the freedom to choose the best one. Living in the UK? Great! No tax for you for the winning from the spread betting and in addition you are fully protected by the law as financial spread betting is licensed in the United Kingdom.