A: While spread betting is quite simple to understand it may not suit everyone's needs. Spread betting is not particularly suitable for investors with longer investment horizons (i.e. buy and hold investors) as the commissions for rolling future positions can add up with time.
RIGHT FOR YOU IF:
- you are able to tolerate risk.
- you have sufficient free capital which you are willing to put at risk in order to make potential gains.
- you have an active interest and understanding of the stock markets.
WRONG FOR YOU IF:
- you are risk averse and don't feel comfortable taking financial risks.
- your financial security would be affected by any losses incurred.
Also, spread trading requires a cool hand and the ability to remain detached and unemotional even when the market moves against you so quickly that you suffer a major loss in the blink of an eye... Trading is about mindset and many people tend to forget this. Don't trade when stressed or in desperate need of making profit - trust me it won't work.
You have to be analytical, disciplined and BOLD to make money doing this. You also have to be confident and know why you're doing what you're doing.
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Remember also that throughout life most of us associate excitement as a good feeling to have but if you apply this to trading it can only lead to disaster. For example people tend to mistake fast moving markets for profitable ones however the fact is that most often than not if a trade is already moving it is too late - newbie traders tend to jump in on these moves only for the market to reverse and almost immediately run into a loss. The answer is to look for potential trades that are close to breaking out and enter for a low risk high reward entry following an initial pull back.
The positive aspect is that the skills required to succeed (mainly discipline, money management and the ability to follow a trading plan) can be learnt over time - you do not need to be a quant or professional day trader to be a successful spread bettor. This is not to say that you won't have down days; all traders will at some point encounter setbacks (that's part of life) but it is what you do afterwards that makes the difference (pulling yourself back up and learning from one's own mistakes, trading using a strategy...etc).
P.S. Make sure to sort out your self-discipline!!
P.P.S. Trading is not fun. It's actually pretty boring. Do extreme sports for fun. Trade for a living.
Can anyone make a good spread better if they worked hard enough and studied the stocks? Not, according to Simon Cawkwell - 'Many are too cowardly to have courage in their convictions and stick out positions over the long term' says Simon Cawkwell aka as Evil Knievel - the City's most famous contrarian. Others get unnerved by initial losses and lack the tenacity to keep trying. 'Many private investors have been burned to the point of never coming back'. 'It does attract the kind of people who are used to and enjoy taking risks.'
A: Which type of person is likely to spread trade? There's no common element that I could identify says Matthew Twomey of WorldSpreads. It appeals to young and old, rich and poor - it's just one of those products really. However broadly speaking you have distinct types of clients -:
- the thrill seekers (the ones who want to have some fun - rather than go watch the races they prefer 'playing' the stock market).
- the speculators who are looking to make short-term gains.
- investors who want to use spread betting as a hedge to their shares portfolio or to protect the value of some other asset.
A: In the past one would have found a high concentration of City-based investors using spread betting but over the last few years things have changed and today the weightings are a lot different from the first couple of years. These days the majority of spread betters are not investors based in the City. Single mums, professionals, all walks of life, it's really hard to differentiate. Where you do see a difference is that those who are not involved in the market on a regular basis tend to overtrade far more than City professionals who are far more selective in their choice. We did more market research here: Who uses spreadbets and what markets are available?
Popular myth has it that financial spread betting tends to attract either high-rolling professional punters or City boy-racer types trading on a bit of insider information, and albeit Howkins, CEO of IG Index does not attempt to de-glamourise them, he does a pretty good job by talking about his clients utilising 'surplus risk capital as a tool within their investment portfolio' rather than calling them speculators taking a punt. In fact, today we have a growing number experienced private investors who are using financial spread betting as part of a balanced portfolio.
A: That is a good question. Age is not a restriction. Also, people tend to think that you need to have a high IQ or some sort of above-average intelligence or be a financial mathematician but the fact is you probably only need basic mathematical skills.
Trading successfully requires staying focused, disciplined and being unemotional in the face of adversity. You do need tenacity and persistence. You do need to get in, spend some time everyday say spend forty-five minutes, getting on with it - five days a week ideally but this really depends on your trading timeframe. You also need discipline (so if you don't have it you need to develop it) because without it you will fail. Discipline is about the ability and willingness to consistently follow your trading system every single trade without exception - even if you feel like not trading today...
Who shouldn't spread bet? Anyone who doesn't have the time to follow the markets and monitor trades everyday especially if one is day trading. And no one should spread bet with his life savings - put aside some money as a starting pot and get on with it, but don't spread bet with your life savings (or even worse on credit!).
Please ensure you understand the risks as spread betting being a margin product is not suitable for everyone. If you are in any doubt as to the suitability of spread betting for your personal circumstances, you should seek independent financial advice.
Hollywood has often depicted traders as daring risk-takers like the phone-slamming, cigar-smoking, lunch-is-for-wimps hero Gordon Gekko in the movie 'Wall Street'. However, a more realistic character for a trader would be the straight guy in a cop movie. You know, the uptight spoilsport who is always instructing the hero to follow official guidelines and procedures, and warning about the danger of taking the law into one's own hands. This is because in practice professional traders are risk specialists, not gamblers who are able to work out and hedge their risks. Additionally they are aware their biggest enemy in the market is staring back at them in the mirror.
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