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Last update : November 2011
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10 secrets to successful Spread Betting
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Page Summary
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Follow these 10 secrets to Spread Betting and you won't go too far wrong. Ultimately they're based on nothing but common sense.
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| 1. |
Trade small positions when starting out |
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You'd be surprised how much needless money is lost by people new to spread betting because they don't properly understand what they're doing.
The main problem is they initially bet far too much per trade.
So be smart and for at least the first few months keep your trading size really small at a maximum of £1 a point. Do that and you'll be ahead of most new traders who are busy diving in at the deep end without first checking the depth of the water.
- This point is discussed in detailed in our free spread bet training guide - more details
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| 2. |
Learn to vary your trading size intelligently |
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It's illogical to always bet the same amount per trade, perhaps £2 a point in the FTSE 100. So learn to vary your bet size in relation to what the market is doing and how you read it. For example -
- If the risk is high (large stop loss), bet with a low amount
- If the risk is low (smaller stop loss) and the profit potential high, that's the time to aggressively increase your bet size
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| 3. |
Costs - They're far more important than you |
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think |
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Successful trading like any business is as much about controlling costs as profit and loss. Trading costs be split up as follows -
- Commissions, and
- The bid-offer spread
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Commissions are the lesser problem (Spread bets don't charge these), it's the bid-offer spread that normally does the real, but hidden damage.
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So keep a close eye on your total costs and realise the more trading you do, especially day trading, the harder it's going to be to turn an overall profit.
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| 4. |
Profit and loss is totally different to winning and |
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losing |
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If Trader A wins 90% of the time and Trader B loses 90% of the time who's better?
Most people will say A.
But it's possible that A loses money overall while B makes a fortune even though he's wrong most of the time. Why? Because -
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| It's all about how much is made on winning trades versus how much lost on losing ones |
If you lose 70% of the time with an average loss of £100 but your average profit when right is £400 you're extremely profitable. But to the uninitiated somebody who only wins 30% of the time would probably be considered as no good.
Spread Betting and indeed all speculation is simply about profit and loss and never about how often you're right or wrong. Don't forget this as it's critical and a point that's easily missed by those new to the game.
Don't strive to be right, instead try to keep your losses small and your profits large.
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| 5. |
Use Stop Losses - One day they'll save your |
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(financial) life |
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A famous market quote relating to leverage products -
| 'More money has been lost by people not using stop losses than all the other reasons put together' |
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Yes, stops will often frustrate, ie you'll sometimes get stopped out at the low of the move, but at the same time they can stop an account losing 10%, 20% or even more on a single trade.
So always use a stop loss when you enter a trade otherwise at some stage in your trading career it's odds that 1 or 2 disastrous trades will devastate your account.
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| 6. |
Be patient - Learn to pick your trading spots |
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In the classic trading book, Reminiscences of a Stock Operator, the author, big time speculator Jesse Livermore, stated that most of his money was made sitting on his hands and doing nothing.
What he was implying was the importance of patience and not thinking that every move had to be traded.
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Instead it's better to watch the market, get some sort of strategy in place and look for the trades where the risk is small and the potential profit large. And if that means doing nothing for a few days or even a week or two then that's often a sign of a good trader.
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| 7. |
Don't kid yourself, spread betting is a hard nut |
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to crack |
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I'm going to be brutally honest with you here.
Successful trading, ie generating good profits over time, is hard.
So if you want to make money, and keep that money, don't take the game of speculation lightly.
Want to learn how to properly trade? Then see this page.
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| 8. |
Don't discount the importance of psychology |
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Ultimately fear and greed moves markets so trading and speculating is as much a mental game as it is about when to buy and sell.
Our minds and subconscious are affected in different ways when we win and when we lose and this is why many successful traders suggest that speculation is 90% mental and just 10% method.
So how do we defeat, or at least control, the mental aspect?
One way is to cut down your position size so any one profit or loss doesn't matter so much and therefore can't affect your judgement.
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| 9. |
Try to specialise in just a few markets |
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The spread bet brokers offer an incredible range of markets and it's therefore tempting to try to get involved in many of them.
Today for example you trade the FTSE, tomorrow it's Swiss Stocks, then Commodities followed by some currency pairs etc.
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Stop, and realise that many of the really good traders tend to specialise in just a handful of markets, if not just a single one. These specialist traders often remark that each market has a personality and you've got to know and understand that to be profitable.
And the only way to learn a market's personality is to concentrate on it rather than flip-flopping between 10 or 20 different ones.
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| 10. |
Beware of 'marketers' selling expensive |
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courses and systems |
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There are a lot of shady characters operating on the sidelines of spread betting all trying to sell 'profitable' trading systems and strategies, often for a hefty price.
There are also plenty of expensive seminars marketed that imply anyone can be a super profitable trader, all they have to do is pay £2,000+ for a weekend course. Plus no doubt be heavily pressured into buying secondary offers afterwards.......
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My advice if you're thinking about buying a system or attending a seminar is to first do some research into what you might be buying - the internet makes this really easy. Read this less than flattering exposé of what to expect at an expensive trading seminar for starters.
Do some quick internet research and it's odd-on you'll find plenty of unhappy and disappointed past customers complaining the course work or system didn't match up to the hype and clever marketing.
Also, if you study the marketing closely of the majority of the expensive trading seminars you'll normally find they're trying to sell a dream -
- Work from home
- Easily create a second income
- Spend more time with your loved ones
- Escape the rat race
- Earn 5% a month for just 30 minutes work (think hard about this one, because if true it would put you in the top 1% of traders worldwide, and all for 6 hours of work a year!)
Ultimately if you want to get profitable and remain profitable with spread betting there's no substitute to hard work and experience, and both of those take time.
Don't forget this and think hard before paying money to someone who is trying to convince you there are simple shortcuts to easy money.
My advice is simple (and free) - start by downloading our free guide 'How to learn spread betting and prosper'
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| Finally, make sure you get a good broker |
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WARNING! - Spread Bet Broker Advice
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There are good spread bet brokers and there are bad ones.
Having a good broker won't guarantee you profits but a bad broker will probably lead to losses as a combination of their gamesmanship and suspect software takes its financial toll.
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So who do I recommend?
Simple, the 2 brokers I personally use for my own spread betting (and I've used them for years) -
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FREE Report - How to Learn Spread Betting and Prosper
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How to build the all-important trading experience
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Where to get trading help and advice
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Which broker to use and why
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Simple 2 month training plan to follow
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Download the FREE report |
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Read more in the Spread Betting section:
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