Spread Betting Tricks
Rule 8. – Have more than one Spread Betting Account
After you’ve been trading for a while you will come to realise that there are many many spread betting firms offering essentially the same thing. It’s important to remember though, that while they all offer the same thing in theory, the reality if it could not be more different.
Some spread betting firms will try to tempt you in with opening account offers and deals simply to get you to trade with them. These can be great and are well worth taking advantage of. But beware most of them come with strings attached such as making X amount of trades on non-equity markets and depositing £X into your account. That said if you do it right it can turn out to be a nice little top up to your account balance.
Probably the most important thing you as a client need to consider is the spread. This is the difference between the buy and sell price of the instrument you are trading. Some firms will offer tighter spreads than others which is why it’s important to have more than one account. When you have a trade you would like to place you can shop around with the spread betting firms you trade with and get the best spread for you. I mean why not. The smaller the spread the bigger the potential profit is for you.
While spread is probably the most important feature there are others that you will want to consider. There is the margin requirements. The lower the margin required the less you need to have in your account to make the trade. You do need to be slightly careful with this as the lower the margin requirements the easier it is for you to lose more than you have in your account. You probably don’t really believe it but if you open a spread betting account with £100 and lose £1000 the spread betting firm will come after you for the £900 that’s owed to them.
There is also the rolling daily charges. Ideally you want these to be as small as possible, otherwise this will just eat up your money. Most of them are pretty competitive but they do vary so shop around. You’ll also want a good level of service from your spread betting firm and a reliable trading platform. It’s no good if the platform keeps crashing, you won’t be able to trade if it does. Most firms also offer trading over the phone which is also something you’ll want to consider.
Rule 9. – Don’t Over Trade
When you first embark upon your spread betting career, you will inevitably be tempted to over trade. Over trading takes many forms and can be deceptive but ultimately if you are over trading you will more than likely make losses over the long term.
Over trading occurs, in my opinion, from boredom mostly. It’s the times when you have placed your trades and are waiting to see the pan out when over trading can start to creep in. You feel the need to constantly be doing something in the market, or feel that if you don’t have any open positions you need to have some as you might be missing out. Well as I mentioned in tip 6 there is no such thing as a missed opportunity. You need to be patient and wait for the ideal trading opportunity. Let the trades come to you, don’t go looking too hard for trades as you will find yourself making poor trading decisions as a result.
If you find yourself over trading through boredom, you need to find yourself something else to do to fill the time between placing trades and waiting for them to work a conclusion. You do need to be watching the trades all day everyday. You can check in on it at several points throughout the day and keep an eye on it that way. With the advent of smarter mobile phones the ability to trade from the palm of you hand is becoming more and more popular. Therefore you can be out and about and still keep an eye on your trades via your phone.
I think it’s a good idea to not be stuck behind a PC all day everyday. Getting out and about can see you make better trading decisions because your state of mind is more relaxed and can therefore focus on trading when the time is right.
When starting out, try to limit yourself to so may spread bets per day or per week and stick to this limit. Also stick to your trading strategy and don’t meddle with the trades too much. Cut your losses short and let your winners run. Do not do the reverse as this will surely see your spread betting account blow up in no time at all.
Rule 10. – Manage Risk to 1% or Less
This is one of the fundamental things that new spread bettor get wrong from the start. So Spread Betting Tip No.10 is to manage risk to 1% or less of your total funds. The best way to explain this spread betting tip is by way of example.
Lets say you open an account with £10,000. 1% of £10,000 is £100. Therefore the maximum you should risk on any single trade is £100. By now you should have a trading strategy in place that gives you all the parameters of your trade. It should tell you when to enter, where to place your stop loss and so on. Since we know the buy in price, the stop price and now we know the maximum monetary risk we can calculate our position size more effectively. Again the best way ti illustrate is by example.
We want to buy BP at 350 with a stop set at 325 according to our strategy. We have an account size of £10,000 so our maximum risk is 1% or £100. To calculate our position size we subtract the stop price from our entry price so
350-325 = 25
Then we divide the £100 risk by the result so
£100/25 = £4
This gives us a £4 per point trade.
This example is for a buy trade. To calculate a sell trade you need to subtract your entry price from your stop price and then the rest is the same.
Entry price = 350
Stop price = 375
375-350 = 25
£100/25 = £4.00
Managing risk to 1% or less when first starting out in spread betting can mean the difference between success and failure. If you stick to 1% this means that you would need to get 100 trades wrong in a row to lose all of your account balance. This is not very likely but trust me it can happen. The important thing is to use this money management strategy along with your trading strategy to give you an edge.
Almost all of the spread betting companies , allow you to use stop losses on every trade so managing your risk at 1% should be achievable with most spread betting firms.
Rule 11. – Read, Read and Read Some More
A good spread betting education is a must for your longevity in the spread betting world. Unfortunately there is no quick fix for this. As with most things spread betting and spread betting well is a skill that will take time to develop and hone. You wouldn’t expect to read one book about brain surgery and expect to be able to operate on someone the next day. Oh no, you would need to study, practice, study some more, practice some more and so on. Therefore if you think you can start spread betting and be successful after reading one book then you are very much mistaken.
You will need to read lots of books and websites to enhance and develop your understanding of the financial markets you wish to trade. There is plenty of free information about today on websites such as http://spreadbettingbeginner.com you just need to do some digging around to get to the good stuff. Many of the spread betting firms themselves offer good information these days. Again you will need to do some digging but the information is freely available so make the most of it.
There are also some good books which will be of use to you throughout your spread betting career. Possibly one of the best spread betting books available is Malcolm Pryors, Financial Spread Betting Handbook. This is a great book and it’s easy to see why it became a bestseller. It covers so many aspects of spread betting and has some excellent spread betting strategies in there too. You may want to read books about technical analysis and candle stick patterns but I would suggest taking things one step at a time. Master the basics first before you move onto the more advanced things.
Rule 12. – Learn from the Experience of Others
You may have heard the saying “Find someone that is the best at what the do and copy them”. This can be good advice but I would warn against it as far as trading in concerned. Trying to copy someone else can easily lead to the poor house. You are bound to not trade exactly as they do and therefore you cannot copy the 100% and will more than likely lose money.
You should however learn for their experience and any tips they have to offer. These days spread betting is rife with people trying to sell you tips or trading systems and I would suggest you are better off teaching yourself and using any experience you can gain from other, seasoned traders. The best place to start is by reading books and scouring the web.There are lots of books about peoples trading experiences and each will have something different to offer. Your best bet is to read through some spread betting book reviews and decide for yourself which will be the best for you.
Scour the web for as much information you can. There seem to be more and more spread betting sites springing up these days. Each has something different to offer. Some of the best ones are written by people that trade themselves and share their own trading experiences with others. Spread Betting Beginner is one of the few sites that is purely dedicated to spread betting and the site owner, Harry, logs all the trades he makes and posts commentary on said trades in his spread betting blog. He doesn’t claim to be an expert but he shares his trading experiences warts and all. You can read his blog at http://spreadbettingbeginner.com/blog
Rule 13. – Technical, Fundamental or Both
When you embark on spread betting in the UK you soon come to realise there are two main ways that people like to trade. The first is what is know as Technical analysis. Technical analysis is the study of historical price action with the goal of trying to predict future movements in price based on past action. One of the most fundamental ideas proposed by technical analysis is the idea of Support and Resistance levels. A support level is a price level which an instrument falls to before bouncing back upwards. A Resistance level is a price level which an instrument rises to before falling back. Technical analysis encompasses so much more than just support and resistance and if this is your preferred way to trade there are several good books available that will help you develop your understanding.
Fundamental analysis is the study of a companies financial health status and any related news analysis. While a companies’ financial situation os readily available from companies house or other site in the web getting the latest news is a different story. If you think you can rely on latest news stories from the likes of the BBC or Bloomberg the chances are by the time you’ve heard the news it’s already factored into the price and you will have missed the boat. There are specialist companies that offer latest news services but obviously latest news is time critical and if you mis-interpret the news you receive it could cost you dear.
Then there are the technical fundamentalists. These are the people that like to use both technical analysis and fundamental analysis. Personally I do keep an eye on the news but never trade because of it. I prefer to develop my spread betting strategy using technical analysis and then trade that strategy with the current state of the markets in mind.
Whichever path you decide to follow just make sure you understand that either path is not a sure fire path to success. It will take time for you to understand how news and technical indicators affect the price and how the price itself moves. Take your time, get to know the markets you trade, develop your strategy and then take it cautious until you become more comfortable with how the markets move.
Rule 14. – Get some Chart Time
Technical analysis is the study of past price and volume information to try and predict future price movements. If this is to be your preferred method of trading then you will definitely need to get some chart time under your belt. They say to become and expert at something you need to spend somewhere in the region of 10,000 hours doing it. Well at 8 hours a day 7 days a week it will take approximately 3 and a half years to become and expert in your chosen field. Therefore when I hear people trying to master chart analysis in few days it just isn’t possible. It will take years of spending time before you get to grips with what a chart is telling you. Trust me it took me close to 10 years before I became comfortable reading charts.
The important thing is not to be put off by this. Yes it will take time but if you are willing to put in the hours now it will pay you back 10 fold over the coming years. The important thing is to take your time and start slowly. Just start with price first and try to identify some potential support and resistance levels. Look at a few charts and do the same. Whatever you do don’t rush in and start looking for the ‘holy grail’ indicator, because trust me it does not exist. Don’t get bogged down with the massive array of indicators and oscillators that are at your disposal. Each indicator and oscillator has its fans but they are all essentially derived from the same five pieces of information. They are: open, close, high, low and volume. Yes you read correct all oscillators and indicators are based on the same information. Did you ever see so many different ways to represent the same thing?
Ok so that last bit isn’t strictly true. They don’t all represent the same thing but how I said they are all based on the same information. Trust me when I say this technical analysis is not that easy to master, if you ever do. It will take time, a lot of studying and a lot of hard work. So what are you waiting for stop reading this and go look at some charts, but don’t forget to come back from more.