Spread betting offers a potentially more affordable alternative to trading in stocks and shares, while the modern trading account also means that you can implement stops and limits, effectively automating a lot of the process for you.
While you will need to ensure that you have the money available to cover initial deposits, you can trade on the results of stocks, currencies, indexes, and even sports results without having to pay the full price of that stock. These markets can be very volatile, and while this does mean that there is a level of risk involved, it also means that there is the potential for considerable profits.
When spread betting you are trading on margin, and not trading on value. This means that you only need place a deposit of the total value in order to open a trade.
If you wanted to invest in 1000 shares at £1 each, then you would have to pay £1000 to buy those shares. With spread betting, you only pay a deposit, typically referred to as a margin requirement, which could be as little as 10% of the total value. This means that you would only have to pay 10% of £1000, or £100, in order to open a trade on these shares.
The initial deposit requirement will vary according to the broker or platform that you use and even the trade that you wish to make, but this margin is the reason that spread betting requires less initial investment when directly compared to investment in the same stock.
If a position moves against you, then you may find that your initial deposit is no longer enough to cover your loss. Assuming that you have available funds left in your account, then any extra money required, which is referred to as a margin call, will be covered by those funds.
If you do not have additional funds in your account, then you could be forced to close your position, regardless of where you believe the market will move next. For this reason, you are advised to ensure that you never place all of your available funds on a single position.
A limit order offers a means of betting only when prices reach a desirable point. If you are taking up a buy position, then a limit order means that your order will only be executed when the stock drops to a level set by you. If you are taking up a sell position, then the order will only open when the stock rises to a certain level.
You can also set stop orders, when using platforms like ETX Capital, so that your trade automatically closes at a certain point. This usually means that you can implement a stop loss so that the trade closes when you reach a certain level of loss. This can help ensure that you do not clear out your investment capital, and it can help to minimise losses automatically.
Once a stop order has been triggered, the trade will take place at the next available price. This means that the price could slip, and you could lose out on some potential profit or your loss could be greater than you intended. It is possible to pay a small amount to implement a guaranteed loss. This guarantees that the trade is closed at the exact level that you dictate, and not at the next trading price.
Spread betting enables you to benefit from leveraging your trades, and this means that the fluctuations in market prices and stock prices are essentially exaggerated. The successful trader can see their profits increase significantly, but this also means that an unsuccessful trade can lead to exaggerated losses. This potential for large losses makes risk management an essential component of any spread betting.
Avoid investing all of your account on a single trade, or opening too many trades at once, and always ensure that you have some money left in your account to cover any margin calls that might occur. Use stop losses to limit the losses that you could make, and master the difficult art of knowing when to exit a trade. Hanging in there too long could cost you in the long run.
Plan Your Trades
You should bet with your head and not your heart, which means that it will be possible to plan your trades in advance. This is another means of being able to manage risk, assuming that you plan properly of course.
Use limit orders as well as stop losses and stop orders to automatically open, close, and cash out on your trades. This can help prevent you from using your heart instead of your head, means that you can still trade even when you’re not able to get to a computer screen, and it can turn your investment into a profitable venture if done well.
The more information you base your trades on, the more likely you will be able to predict movements with some degree of accuracy. Look at charts for the companies, indexes, or other vehicles that you intend to invest in. Even if you will primarily use market analysis or internal and external organisational factors to base your decisions on, take a look at charts to try and identify trends.
While historical trends do not guarantee future movements, they can certainly be used as a reasonable indication of possible movement and they could offer a means of protecting your profits and minimising your losses.
Market news and market movements will also give light to invaluable information that you can use in your trading. If you can look at past market analyses and combine this with past charts, then you can identify the likely movements that will occur if similar news breaks.
Use the live news feeds that are available, even consider signing up to social media accounts so that you can receive Tweets and updates of the latest news, and gather and utilise as much information as possible to help ensure that you have the best chance of turning a profit from your spread betting efforts.