Beginners Tips
In an ideal world I recommend watching your trades as closely as possible, especially if you are new to trading. However, we do live in the real world and this is not always practical. Luckily there are processes in place that will allow you to manage your trades in an effective manner.
If you are looking to set an entry point into a market then one of the most useful options is the ability to set what is known as an ‘order to open’. This effectively allows a trade to be opened when a chosen market reaches a desired level in a particular market. When a trade is open you can keep your potential losses to an acceptable level by setting a ‘Stop’. For example: The FTSE, Daily is being quoted at 6020-6022 you choose to buy at 6022, but set a ‘Stop’ at 6005. This means that if the market falls you will be closed out at that level, limiting potential losses to 17 points.
You may also put a ‘limit order’ in place. This works the opposite way to a ‘Stop’ by allowing you to close out a trade if you make a certain amount of profit. It’s worth noting that this is one instance where it is possible to benefit from gapping in the market, as many firms will close positions higher than the level originally specified. Although these are all tools that can be very useful, it is always considered to be a good idea to monitor positions as closely as you can. Free ‘Stops’ do not legislate for gapping in the market and a higher price is paid to guarantee specified levels.
When looking at your open positions for the first time it is worth remembering that the current position is calculated on the mid-point of the current quote. As you have paid the cost of the spread to enter the market it will look as if you have made a loss already, even if the price hasn’t moved!
Starting out in spread betting, here are some tips to get you on your way.
1) Don’t be taken in by low minimums on selected markets. You might be able to bet 10p a point on certain currencies such as the USD/NOK, but this market is highly volatile and your risk would be much more compared to a £1 bet on the S&P500.
2) On indices, spread-betting firms may offer spreads on the UK100 and the Wall Street. These are the same as the FTSE 100 and the DOW Jones. The reason they do this is due to copyright restrictions on the names of the indices.
3) Putting a stop loss as close as possible may sound like a sure-fire way to reduce your risk, but if you set it too close then it will trigger just through regular intra-day movements. Look at how much the market has moves day-to-day using the charting software provided and set a stop loss that is reasonable.
4) Choose stake sizes you are comfortable with and work out how much you are risking in each trade. Remember it is a leveraged investment, so you can win and lose much more than your initial bet. Don’t risk money that you cannot afford to lose. I would also suggest that you don’t risk more than 10% of your money in your spread betting account on any one trade.
5) One of the biggest mistakes spread bettors make is thinking that the market will come back so they double or triple their investment and lose a fortune. Don’t be afraid to close out your trade early for a loss, there will be plenty of times where you will make a profit.
6) Put your emotions to one side and trade using logic. Just because a certain share did well for you last month it is not an indicator of future performance and if you dislike bankers it is no reason to sell RBS shares.
7) Get behind trends. If the market is going down don’t buy a market thinking it will come back up. This is an easy way to lose lots of money. Wait until the market starts to bottom out and turn your way before you get behind it. I would rather lose a small handful of points on the way up rather than risking losing a load of money on the way down.
8) If you are trading sizable amounts, look for a firm which will ring fence your money. In the rare case that the company you trade with did go bankrupt and they hadn’t ring fenced your funds, you will lose everything you had with them. Only a handful of firms offer this so do your research carefully.
9) Spend time researching your entry and exit points. This is one of the most important parts of trading. Prior preparation using charts and reading financial news will increase your odds of making money.
10) You can use demo accounts to get to grips with how both spread betting and financial markets operate. However, I suggest that you don’t use the demo accounts as the working is done for you and you will learn much more a lot faster if you start by paper trading. Give yourself £1000 to play with and write down theoretical trades.
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