Spread Betting Currencies More Risky?

Q. Is spreadbetting currencies more risky?


Reading some of your articles I detect some caution in spread betting currencies. Is this true for the big currency pairs like the Eur/Dollar?

A: The caution is the speed and especially true of the big pairs. I freely admit to reading the chart spot on for about 80% - 90% of the time and then losing on the trade because of the whipsaws, you HAVE to have large margins and take profits frequently and losses are less that way... but we all trade currencies with a bit of fear... that's a large amount of dosh you are handling! It IS exciting and it can be VERY rewarding - but its dreadful for the stress levels at times!

In short... trading currency is dangerous... should have a health warning on the trading ticket!

Q. Trading forex but becoming very frustrated. Spreads are wide and I keep getting stopped out by my 30 point stop only for the pair to trade up by 40 points from my initial trade.

I have been spread betting since January of this year and finding myself becoming very frustrated. First off, the bid-offer spread and the minimum deposit required are so high (I use IG Index between) that I find myself ignoring stocks and only betting on currencies. And then for instance last night I went long on the £/CAD with a 30 point stop only to be stopped out and then for this pair to trade up by 40 points from my initial trade.

A: Your question is a little vague but I may be able to point you in the correct direction.

Firstly, all trades you enter should be part of a larger strategy, whether discretionary or mechanical, and so the outcome of each trade shouldn't be a big deal. If you find yourself getting upset about a single trade, you probably either risked too much capital on it or it was not part of a repeated strategy. If you took the best strategy ever created, waited for 1 signal from it and judged it based on that then it would be no better than any other system!!

Spread Betting makes it very simple to trade forex - the stake simply represents the profit or loss for every pip the forex pair moves. So if the Euro is currently at £0.9430, a spread better who was of the opinion that the Euro would continue strenghtening would buy a rolling daily EUR/£ bet for a stake of say, £1 per point which would be equivalent to a market exposure of £9430. If the rate rose to 0.9640 and the trader decided to close the trade this would translate into a gain of £210.

You really want to aim to get a methodology that you can be confident will give you a positive expectancy over a large number of trades. This way, when you enter a trade, you actually are not too bothered about what happens to it. If it goes against you, you just know that it was one of the 40% (or whatever) that doesn't go your way.

However, if you are having the problem of picking good trades but often getting stopped out before it has the chance to go your way, there are two possible things that you may wish to consider.

If you are using IG Index make sure to contact them and remove the guaranteed stop loss (which is the reason that the spreads appear so high.

* Are your stops too tight for the time frame on which you are trading? If you are generating signals that you expect to come good over the next day, for example, then your 30 pip stop may be too tight.

* Is there anything you can do to time your entry a little better? It sounds from the example above that you may have seen the major move coming, but you may want to think about how you can time the entry better, maybe by dropping to a lower periodicity in the chart.

Anyway, I hope this helps in some way. Keep at it.

 ...Continues here - How the Carry Trade Works

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