Step by Step Guide: How to Get into Spread Betting
Step One: Open an account with Ayondo, ETX Capital or one of their competitors. Get their literature and handbook and carefully read every word. Follow the examples they give; they are very similar to the examples in this guide. Make sure you understanding how the trades work, what the ‘spread’ means, what the deposit factor is, what the trading periods are, what ‘one point’ means, and so forth.
Step Two: Decide how much you are going to trade with. Set aside an absolute fixed sum of money. This should be money which you would rather not lose, but which will not destroy you if you do lose it. For the normal person this would be around £5000. You can start with less, but not a lot less. For the better-off person this would be £10,000 – £20,000. If you want to trade the FTSE, for example, the minimum you would require to place a FTSE daily trade might be £100 but we would not recommend you to deposit this minimum amount as normal daily fluctuations of the FTSE 100 would be enough to wipe you out.
Beginner’s Guide to Spread Betting: What You Need To Succeed
The Edge
Note: One of the reasons that otherwise sensible people get into trouble with spread betting and gambling in general is as follows. Gambling is exciting. We live in a relatively safe, rather dull world with few challenges or dangers. Humans seems to thrive on the buzz of danger, and this is the main attraction of gambling – the excitement of winning, the fear of losing. It is a roller-coaster ride sometimes. The important point is this; you can’t get a ‘buzz’ by betting money which is totally insignificant to you. For example, if it were possible, you would not get much enjoying out of trading the FTSE at 10p a go. If you win £1.50 in one mega-trade, so what? Are you excited? No. Could you care less? No. To get a buzz, you must bet significant amounts of money, otherwise your gains are meaningless and your losses are completely painless.
And this, my friends, take you perilously close to…THE EDGE. To be a successful spread better you must always have discipline. This discipline allows you to bet significant amounts of money, but to back off if the losses become too great and move you closer to the edge.
The edge is the point at which losses impact seriously on your life, your health (mental or physical), your family or your lifestyle. Do not go too near that edge – it tempts you to throw yourself over!
Tip: You must also ruthlessly destroy any ‘mystical’ inclinations you might have. Hunches, whims, feelings are all for losers.
The belief in ‘mystical forced’ has taken down more gamblers than any other factor. So, no lucky charms, talismans, praying, tarot readings, crystal divination, astrology, black cats, hunches, whims, coincidences or sheep entrails…PLEASE.
Step Three: Buy a log book or use an excel sheet to record your trades. A hard-back book of plain lined paper is fine. Even an excel sheet is good. Make columns for date, time, details of trade, buy and sell prices. You might also like to add columns for deposit factor, spread…etc but these are not essential. The most essential columns are the DATE and TIME.
Why is it important to record trades? Let’s suppose you have a habit of dealing on the telephone. All conversations with your spread betting provider are recorded on tape. If you give a clear BUY instruction, and they SELL instead, then the date and time will allow them to locate the recording and check who has made the error. During all my dealings I have never known them to make an error, but it does happen. They take thousands of instructions every day. I am always very careful to repeat my instructions, and have them repeat back to me. Of course you could also deal online using the provider’s online trading platform and I would say that today the vast majority of spread bets are placed online.
But more importantly the diary allows you to monitor your wins and losses. It allows you to keep track of how you are doing and to remind yourself how much you have lost! If, like me, you intend to clock up substantial gains, you will need this in case the Inland Revenue asks for a report on your income (yes, sure I know that currently there is no requirement for a UK resident to declare spreadbetting gains but they might still ask you about that big transfer you received from a spread betting company!). They typically greet claims of ‘winning a lot of money’ with derision, and so you have to be able to back it up. Obviously your spread betting company will send you a copy (usually same day by email) of your trades, and you should file these carefully in a ring binder. They are your evidence!
Step Four: Decide which market (s) you are going to trade. If you are a beginner, then start with one index, say the FTSE 100. I suggest the FTSE 100 for three reasons:
- It is easy and logical to trade.
- It is close to home, and so you are likely to have an opinion which way it will move, unlike a commodity such as frozen pork bellies – I don’t even eat such things!
- You can get up to date information on the index regularly and track the index yourself. This is important. March Cocoa could be doing all sorts of exciting things, but can you access the hour-by-hour or even the minute-by-minute information?
Step Five: Decide on a strategy. In all successful spread betting, the winners have a strategy, the losers bet haphazardly, in a random fashion, guided by superstition.
Step Six: Make some dummy trades. Check prices and make dummy trades on a demo simulator. Most spread betting providers nowadays offer demo accounts – Ayondo and Spread Co to name two. Watch what happens and keep track of your gains/losses in your log book or excel sheet. Put a ‘D’ next to these entries for Dummy trades. This way, you can get some experience without risking any money. But don’t do this for too long. It is unreal and is a surprisingly long way from making a real bet! Many people have been fooled by making money on paper trading, only to find that their emotions get the better of them when real money is at stake.
Paper trading is very different and I would say if anything gives you a false sense of security before the real thing, the best introduction to betting on indices is an early and painful loss, the most dangerous introduction is a long and reassuring paper trading learning period followed by some early success, as that will lure you into the hole.
Step Seven: Make your first trade! Keep it small, say £1 a point on the FTSE during non-volatile market conditions. That way, you will not win much or lose much. I want you to understand the difference between placing a real bet and paper trading, talking or reading manuals! There is nothing like the thrill of your first wager and you will instantly understand why spread betting can be so addictive!
Don’t be afraid of placing your bet and sounding like an amateur should you need to call the spread betting company and talk to someone to explain the basic workings to you. You are an amateur, but so was everyone at one time. Just say to the dealer: ‘I’m new to this, so perhaps you could take me through it slowly. I’d like a price on the December FTSE please.’ Normally they would snap out something like: ‘four nine twenty to twenty-two.’ which takes a few seconds to register when you are new to the game (4920/22). Having tipped him off, he will take it a little slower and say: ‘December FTSE is now at four thousand nine hundred and twenty to four thousand nine hundred and twenty-two.’ That’s their spread, if you remember. Also remember that people like you are their customers – they are keen to keep you happy. IG Index and Capital Spreads even offer a number of free trading seminars for you to attend. All in all, I have found them quite customer-friendly and good companies to deal with.
When you have your price, say ‘thanks’ and hang up the telephone. Think about the price and if you want to trade. If so, make another call. Again say something like: ‘Hi, my number is G1234. I’d like to place a bet on the December FTSE but I’m new to this so perhaps you could talk me through it slowly?’ At this point, get them to quote again. Then say (for example) ‘I’d like to BUY the December FTSE at £10 a point at your price of 4922.’ (Remember, the price could have moved since you last called. If so, he’ll give you a new price). Seasoned spread betters would say something like this: ‘G1234 Derick Gordonson, Up bet, December FTSE, ten pounds, four nine two two.’ The spread betting company would respond with ‘You’ve bought Dec FTSE at four nine two two. OK, we have that.’ But he’ll treat you more gently! You’ll get something like this: ‘No problem. You are betting that the December FTSE will rise above the current price of four thousand nine hundred and twenty two. You are betting ten pounds for every point and your deposit is £1500 which you should deposit immediately. Do you want to go ahead and place this bet?’
Step Eight: Watch the market and decide when to bail out.
With that first bet you will be nervously watching the market minute by minute. This is excellent experience for you because you will rapidly realise that it is hard to guess which way it is moving. It starts to go up. Is this a major rally, or a little blip before it plunges down again? Aha! It’s turning down…but is this a slight downturn before surging to greater heights? or the start of a huge drop? Tricky….This is non-transferable experience, and you have to do this for yourself. One day spent watching the FTSE will give you a very good education into the vagaries of markets!
Your are now a spread betting trader!
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