Spread Betting: Realistic Expectations
If you want to be successful at spread betting, you must have realistic expectations. The question is how much return is realistic? The hype that clogs the Internet would have you believe that doubling your money is the goal, the only decision being whether you want to do that in one month or two. The reality is different, but much more sensible, if you still want to be still trading this time next year.
The point is that, other things being equal, the amount of profit you stand to make depends on how much risk you are comfortable taking. If you trade on high risk deals all the time, then it is only a matter of time until that risk catches you out and you lose significantly, perhaps significantly enough to wipe out your account – that’s what risk means, after all.
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It’s certainly tempting to try to increase your account size rapidly, particularly as the concept of risk is such a difficult one. It is hard to compare the risk of one trade to another – after all, they either work or they don’t, so the percentage of risk seems to become irrelevant after time. But it’s essential that you do develop a sense of the amount of risk you are taking with any particular trade, as averages will win out in the end.
This brings us back to the original question, and that is how you can determine a realistic expectation of profit for your trading. With official interest rates in the low single figures, you cannot expect account doubling in a near timeframe with any assurance of success. It’s not just a case of having to ride out wild fluctuations in your capital if you choose trades that have the potential to move quickly, as those moves could literally take away your capital which would prevent you from any further trading later when the market may have come back.
One thing that is certain is that you should not expect high returns while you are learning to spread bet. 80% to 90% of the estimated 150,000 spread betters lose, and the top 10+% didn’t get there by starting this week. It takes practice and training to make a profit spread betting, or with any other trading for that matter. If you want to make a career of it, you need to adopt a low risk strategy in order to not be knocked out by some coincidental simultaneous losses, which happen more often than you may think.
One of the richest men in the world, Warren Buffett, is excellent at reading the markets, although he buys and holds rather than trading in and out of the markets. He has averaged 22% per year during his career. Certainly spread betting has the potential for higher gains, particularly with the leverage available, but I don’t see any traders who are wealthier than he is. A good level of return to aim for is 15% per year, as this is achievable without needing to regularly place your capital in jeopardy. In other words set a goal that reflects what you can achieve elsewhere in the markets. When learning to spread bet, or any other type of trading, your first concern should be to conserve your capital while you learn, and allow any profits to come as an adjunct to this. Only when you are seasoned can you allow yourself to look at profit as a goal.
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