Learn to be a Financial Hunter - Not the Hunted

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How to Learn Spread Betting and Prosper
Time spent on reconnaissance is seldom wasted
Time spent on reconnaissance is seldom wasted is an old military saying and it's so true for people new to spread betting.

But I'm not talking about reconnaissance as a form of researching, ie whether the FTSE is going up or Gold down. Instead it relates to the mechanics and application of spread betting.

For example, most readers will have invested in some stocks before and are therefore comfortable with the buying and selling process. However, stock trading is a simple affair and on the whole the prices don't move that fast. Also, your average stockbroker doesn't offer any leverage.

But spread betting is different and altogether more complex. Take orders as a great example. With spread betting there are around 10 different order types that you must understand - including when to use them, when not to, as well as their inherent advantages and disadvantages. I'm talking about orders such as -

  • Limit
  • Stop losses (extremely important)
  • Market on close
  • Good Till Cancelled (GTC), and
  • One Cancels Other (OCO)
Recon assignment 1: Get comfortable with the basics of spread betting
Your first assignment is to make sure you understand the basics of spread betting. Read the LearnMoney.co.uk spread betting section for help.

Pay special attention to how the bid-offer spread works. For example -

  • How does it move
  • The price differential between the 2 points
  • What can be traded on the bid and what on the offer etc
Don't worry too much if you're struggling to understand a particular point, that will come with time. This is because Spread Betting on the whole is not so hard to understand but some points can initially take time to sink in.
Recon assignment 2: Understand the basics of 'Orders'
I mentioned above that there were about 10 different types of orders that can be used to either initiate a position or take a profit/loss. You must understand the basics of all of them, including when and when not to use them.

Make sure you pay special attention to stop loss orders and the important concept of slippage.

Recon Assignment 3: Short selling
Many people new to spread betting don't always understand short selling, or the ability to make money from declining prices. The problem normally relates to this question -

'how can you sell something you don't own'

However, understanding the answer and in turn the mechanics behind short selling isn't necessary as it won't make you any money, nor help you lose less. Instead focus on 2 things -

  1. If a broker offers you the ability to short sell, let them take care of what goes on behind the scenes, and
  2. Just concentrate on how both profits and losses are generated via shorting the market
When I was first introduced to short selling it took me a full week to get my head around the concept. It might take you a similar amount of time so don't try to rush things. How will you know when you properly understand it? I use the analogy of riding a bike - you know if you can and you certainly know if you can't.

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