- 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) or ETX Capital (who will give you a £100 top up when you open an account to spend on trial trades, plus free 'beginners guide' book)
- 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.
- Start with slow paced UK FTSE 100 stocks, preferably expensive blue chip stocks that are very liquid. 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.
- 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). Decide in advance the level you will trade at and try not to give into temptation and buy too early.
- 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.
- 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.
- Be careful and try a few small bets first when trading for real money - do look at the graphs, the highs and lows are crucial!!
- Check what your stake is buying you - is it £1 per Pence, or £1 per 0.001 pence - it does kinda make a difference.
- Don't be greedy - it's better to take a few quid profit early than hold out and lose the lot. As Soros said when asked 'how did you make your money?' he said 'by selling too early'.
- Don't think you know better than the market. You don't. And even the most inside of insider information is probably widely known.
- Don't get addicted to looking at the pretty graphs and colours moving around all day - it is best not to lose your day-time job at this stage.
- Don't get caught up in 'missing the boat' i.e. keen to get your position on because you think you are right, you probably aren't!! Remember to be successful in this business you must possess an objective disposition and the ability to control your emotions.
- Do stagger your entry. Often you won't manage to pick up an exact market top or bottom. Instead of entering at one particular price use an approximate entry range so that you build your position by adding small bets each time. This is one of the advantages of spread betting, you do not have to pay extra commissions for multiple deals unlike with share dealing. Not only will this allow you to stay calm but it will help you develop a low-risk staggered entry.
- Never average down - i.e. do not increase your position when the market moves against you. It can be a good idea, though, to increase your position once you are already in profit. For example: You open a position for £1 a point on the FTSE at 5000, stop loss at 4900. The market moves to 5100. You are £100 in profit. You could now think about perhaps buying another 50p and moving your stop to 5000. Should the market move against you, you will break even on the £1 per point trade and lose £50 on the 50p per point trade.
- Have you got time to spread bet? Place daily bets only if you can constantly watch your screen, otherwise stick to futures. Prior to opening or closing any daily bets it's advisable to check Level 2 data as this will let you know at a glance whether the price is going to move up or down.
- Do try to buy on short term weakness within a trend of long term strength (doing the reverse when selling). It is sensible to try to buy as cheaply as possible but if it all comes to saving a few pence on entry - then you really should be getting into the position in the first place.
- Above all get to know the shares in your portfolio, make mistakes and learn from them. Try to enter trades near to support (doesn't cost much if you are wrong) and look back at your portfolio, identify trends you would have liked to trade and back test using chosen indicator.
- If you close the deal by telephone, state your requirements accurately and don't expect advice. Check your contract note carefully.
- In placing your bet, use a stop loss (maybe even a guaranteed stop loss!) and perhaps a limit order. Set your buy price low and the computer will buy for you at the best price.