More Practical Spread Betting Tips

1. Start small! Remember: if you are a beginning trader or new to spreads, leverage always works against you! Always start smaller than you think you can handle.
2. Resist the urge to start gambling on Indices, Oil, Gold, Currencies, etc. This is where the spread betting companies make all their profit, and to a certain extent the shares service is just a feeder to get people to punt on stuff they know nothing about and will lose money on. I would not want anyone to suffer the feeling of complete catastrophe that I've suffered after losing £10k in a few hours trading the Dow online after too many shandies. My own losses on the Dow have been substantial, although this year it's actually been pretty profitable, so hopefully those mistakes may be in the past now (yeah right !!) Or if you find it impossible to resist the urge to do these trades, then at least be honest with yourself that it's gambling, not investing.
3. Stick to sectors that you understand and have a real interest in. If you are not able to constantly remain updated on the company and ready to put the time necessary to remain in-focus on the sector then you are only gambling! Trying to make a quick punt on sectors you don’t understand can often turn to be an expensive mistake.
4. Don't over-stretch - leave plenty of headroom on the account for adverse price movements in the underlying share. I would say that one should never really gear up more than say double the value of your equity. Whereas in reality it's easy to end up geared 3,4,5 or more times with spread betting accounts. 5 times gearing will mean your entire equity is wiped out if the price moves 20% against you !
5. Spread betting can be a very useful investment vehicle in the right hands however it is very easy to over-leverage and then say buy 1 million quid of copper . Needless to say this can quickly lead to doing a Nick Leeson (who brought about the collapse of Barings Bank!) on a personal financial level. One thing that I have found really helpful in imposing the whole discipline and not getting too carried away thing is to build a spreadsheet that shows me the exposure I have if I had actually bought that amount of stock/commodity. Every decimal point increases by a factor of 10 the amount you have bought, lets say BP is at 6.49, if I buy £1 a point that's equivalent to £649 worth of BP shares, if I buy Gold at 549.5 that's equivalent to buying £5495 of physical metal, taking copper as an example if I buy that at 2.1234 that's an equivalent exposure of buying over £20k worth of the stuff. By structuring my bets as a portfolio of shares, metals and indexes I can see what point, synthetic exposure, and funding costs I am committed to in total. If I feel uncomfortable with the amount of equivalent exposure I just cut back my position, or increase it as the case may be. I also believe that thinking in these portfolio and real terms helps to prevent the terrible urge to over trade that you will feel as you see those numbers ticking up and down.
6. Some people use spreadbetting for very short term movements and only hold for a few days, others, like myself, have tried to build longer term positions, buying far-dated contracts, six or nine months out. It's all down to your own trading style rather than a set of rules. I am refering only to individual share bets, not to index positions. That's a different game altogether...
7. Never invest in any company which is not profitable (unless, of course you want to short it ). You should only buy stocks which are showing relative strength and have a consistent record of increasing profits and dividends.
8. You can also place option-based bets as an indirect way to trade options.
9. The sky is blue and the future is rosy. Be careful as you can easily get carried away, you find yourself with a stock that looks way undervalued, that's in an uptrend, and you think to yourself; If I use ten percent gearing I can tenfold my money in a couple of months. Shares do not go up in straight lines; even the fastest risers retrace at points, and you can find having had some decent gains, that they are wiped out along with your initial investment in a couple of very bad depressing days! Which is again a warning on overgearing really!!
10. Margin Calls - always take the call, don't turn the phone off. This is especially important if the margin call is big. Sometimes I need time to work out what money needs shuffling where, and how long it will take to move, so I call back after working out an action plan. When you have a big margin call, you need to have a credible plan for dealing with it - just asking for more time in the hope that the market goes your way is not an option usually.
11. Only promise what you can deliver and always do what you say you're going to do. This carries a lot of weight with the spread betting companies after a while, if you build a reputation of being someone who is good to their word then you're more likely to be looked after in difficult times. Except with Man Spread Trading, who don't give a monkey's about anyone other than themselves. Normally you need to find the cash within a couple of days, but I've been able to negotiate longer periods (up to 2 weeks) by honestly saying where the money was coming from (e.g. T+10 settlements) & then delivering on what I promised. If you tell any lies about funds coming in, etc, then expect to be closed out and unceremoniously dumped as a client. It's always best to manage the situation, and if you're in the merde, then face up to it and deal with it. Communication and honesty are the key.
12. Learn all about the effects that inflation, interest rates and taxes can have on your chosen shares. Good management will have made provision for the factors that it can not control such as those named above; poor management will get slaughtered if there is a sudden and substantial increase in any of them.
13. I re-iterate that each of us must decide our own time-frame and risk-profile and what is right for one does not have to be right for the other. But if you are holding or looking to top up or exit then it helps to understand what's going on in the mind of the trader.
Focus on an Entry and Exit point as this is very important - study the approaches of WHEN to buy or sell, purely to minimise your exposure to risk. Check yourself constantly and make sure that you are moving forward and getting smarter with your entry and exit points. Relying on pure luck is futile.
14. There is 'no' express route to trading successfully. Spread trading is like trying to fly a Boeing 747: if you don't understand the weather conditions that can affect you (i.e the market), and don't understand the controls (i.e your strategy) and don't know where the escape exits are (i.e stop losses) then you will eventually CRASH AND BURN! There is no substitute for doing your own hard laborious research, ...back test ...back test, and back test ...even more! Profitable trading is not just about making a trade, it's also about knowing when not to trade. It sound obvious, but how many times have you opened a position because it looked 'right' only for it to go against you? Do you even know why the market went against you? Note, for every trade you lose, you're down the spread (e.g. 2pts) plus your stop-loss e.g. 5pts) = 7pts. You'd better have a winning strategy! Otherwise each time you loose you'll have to win back 7pts x stake just to break even!
15. If your strategy is 'truly' sound you should be able to easily turn £10,000 into £20,000 with minimal/controlled losses.
16. If your strategy cannot be put down on paper in a clear procedural form, indicating stop losses, good/bad market conditions, signals, patterns etc, then it is flawed!.
17. If you find yourself consistently losing chunks of your £10,000 then your strategy is flawed! Change it, or give up.
18. If you find yourself opening positions out of 'greed' then your strategy is flawed.
19. If you find yourself closing positions out of 'fear' then your strategy is flawed.
20. If you find your self seeking holy-grail advice on how to trade profitably then you don't even have a strategy!.
21. Most who trade with spread betting firms lose money, but the winners make very high gains.

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