Spread Betting Risks
Spread betting is certainly a high risk/reward way of trading on the financial market and it thought that in excess of 2/3 of those people that use spread betting, fail long term.
The main risk of spread betting is the leverage aspect of trading with it. Whenever you open a spread bet, you are only paying a small percentage of a trade’s value to do so. Therefore profits and losses are achieved/incurred much, much quicker than if you were simply share trading. This aspect of spread trading is one of the main attractions for many but it must be the ramifications of trading on margin must be understood by the bettor from the offset.
Although there are risks involved, spread betting companies do provide tools to help protect you. For example a stop loss or guaranteed stop loss can be used to limit any potential losses and limit orders can be implemented into any trade to automatically close a position when your target price has been met.
It really is important to be sensible when spread betting and to know when to cut losses and take profits. Many people find themselves holding onto losing positions for too long and quickly find themselves in deep water in double-quick time. Equally, many traders get greedy and don’t close profitable positions when they should. The psychology of spread betting is a whole topic of its own and something we will be covering shortly.