Quick Spread Betting Tips for 2010
- Spread betting is more accessible for new investors than CFDs, but less cost-effective due to the wider spreads (which is usually more than compensated by its tax-advantaged status).
- Open up a DEMO ACCOUNT with a spread betting firm such as
Capital Spreads (£10,000 to practice with).
- You will get £10,000 to play with. Trade with that virtual £10,000 as if it was your hard earned cash, and do so for at least 2-4 months with your theoretically 'winning' strategy. Don't invest anything till you are consistently ending each week in profit...Jump straight in with cash and you will lose.
- Ready to start trading for real money!? Ok. First and foremost start small! It is harder than it looks. So appreciate that - and start small. I think way too many of us are tempted to really lump on big trades at the beginning, needless to say it can get very painful. Lots of providers will let you start trading with small stakes. The good thing here is you learn more by actually doing it rather than reading books.
- What are you going to trade? Different assets trade differently and require different skills. I would suggest you to start with slow paced UK FTSE 100 stocks, preferably expensive blue chip stocks that are very liquid. If you can't make money on FTSE 100 shares, it is not going to be any easier with small caps which usually come with wider bid-offer spreads. Indices are too random for newbies to guess, US stocks (most) are too volatile and will wipe you out in no time, and also Forex is too volatile for beginners. Likewise commodities like Oil are just too volatile to be trading (at least until you learn the ropes). Newbies love it because it looks like there's lots of opportunities to rake in the money but I see it as lots of opportunities to buy your brokers champagne lunches...
- Don't trade too many different markets at once from the start. Select one or two markets and focus on them until you build confidence; trading multiple markets opens up more opportunities but it takes skill and time to build this up.
- When ready to start spread trading for real money do keep in mind that companies can let you open an account with £200, but I would suggest a minimum of £1000. This will then enable you absorb more losses than with £200 or £500, if you keep your bet size to a small fraction, 2% max risk is ideal but with a small account I would use 5%.
- Use a financial bookmaker that quotes firm prices on a screen. Start initially with a maximum of five companies. Absolutely no shorting at this stage (shorting companies is harder psychologically).
- Don't make any 'in-running' bets (i.e. identify opportunities while the market is closed). To consistently make money in this business requires a disciplined and objective approach. Decide in advance the level you will trade at and try not to give into temptation and end up buying too early. You can even set market orders out-of-hours to trade more efficiently and is especially recommended if you are new to trading as it reduces the psychological effects that arise when opening or closing a trade. Trading at the market is really only an advantage if you are trading in size, and so is suitable for more experienced traders.
- Before you open each spread bet, write down your plan: why you've taken the decision, trade size, stop loss level and what your exit strategy (including trade duration) is. If you decide not to open a position after you've been considering it closely, write down the reasons for that, too. Once you enter a trade do note your fill price and re-calculate risk if necessary. Remember to exit immediately should the price hit a level that proves the trade wrong. Having clear target exit levels is important as otherwise emotions might get in the way; it is just too easy to take profits too early or let losses run in the hope that a trade will turn in your favour. The biggest risk with not having a plan is that you become prone to impulse trades and might end up exiting your trade or adding to your position without really analyzing it through.
- Place your bet only when you think that the underlying financial instrument will move up or down sharply. Be aware that the spreads may not reflect the actual market price at times - they reflect what the market thinks the instrument price will be.
A dream written down with a date becomes a goal.
A goal broken down becomes a plan.
A plan backed by action makes your dream come true.
>> Starting Out: Check your Stakes and Don't think you know better than the Market
