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Chris Bell

Things that you should know about spread betting

Spread betting is very much popular in today’s world. Most of the retail traders are fascinated with the spread betting industry since they don’t have to pay huge upfront capital to buy a certain percentage of share of the company. You will have leverage trading account which will help you to open big trades with the relatively small amount of money. Though leverage trading is very profitable it can also be very dangerous on the wrong hand. The professional traders in the United Kingdom always suggest the novice traders learn the use leverage before exposing themselves to the real market. Your broker will always give you leverage to trade with a bigger amount of money but if the trade goes wrong then your trades will be closed by a margin call so that you don’t have to pay additional money. Let’s make it clearer.

Let’s say that stock A is trading at $4.5 per units. So if you want to buy 1000 shares of stock A then you will have to invest $4500 which is really big. But in financial spread betting everything is a little bit easier for the investors. You can decide the value of per pip movements of the market just like traditional trading system. For instance, you set $10 cap for each pip of rising. So if the value of the share rise from $4.5 to $4.8 in next one hours then you have 3 pips in profit. Since you have determined the value of each pip as $10 so for the 3 pips profit you will earn $30.But hold on. We have some more calculations to make. Most of the broker will have minimum deposit requirement to trade certain share. Let’s say that for trading the shares A you will have to deposit 5% of the face value of the market share. So in order to buy $4500 worth of share, you will have to invest $4500×5% = $225 which is significantly less. This is the true beauty of financial spread betting. But things might go extremely bad if you don’t learn about proper trade management technique. A simple 3 pips loss will cost you negative $225.

Risk management factors

Understand the risk management factors is the key ingredient to become successful in financial spread betting. Even after doing all the technical and fundamental analysis at times you will have to face a series of losing trades. But losing trades are very normal as long as your trade with discipline. Under no circumstances, you should take risk more than 2% of your account capital. It’s true that some traders often take more than 5% risk in each trades but they also lose a big amount of money in the long run. You need to ask yourself how much money you can lose comfortably without getting emotional. Based on that you should determine your spread betting lot size.

Always look for high-quality signals

Getting access to the financial market with a small amount of trading capital doesn’t mean you will have to trade all day long. You have wait on the sideline for the best quality trading signals. At times take a break from your trading career. If you are completely new to the financial industry then spend some money to get yourself educated in the financial market. It’s true that most of the spread betting is done in the lower time frame but if you want to consider it as a full-time profession then you need to trade the higher time frame. In higher time frame trading you will have much more accurate trading signals. But their slight problem in higher time frame trading. You have to be extremely patient to find a single trade setup in the market. But it’s always better to stay on the sideline rather than risking your real money on poor trades. So focus on the quality of the trades.

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