Spread betting has taken the financial world by storm over the last ten years as it is a way of speculating on the future price of an asset, whether up or down, without actually taking ownership of that asset. However, due to the nature of the markets, this can be an extremely risky venture, especially in volatile times, as you can very quickly lose a fortune. Many people believe that the straightforward nature of spread betting makes it a sure-fire way to make money, when in reality unless you have a strong grasp of the fundamentals of the market that you’re betting on, or you are going to put your money heavily at risk.
It is possible to spread bet on the price of shares, the price of commodities such as precious metals or energy products, currencies, or even general stock indices, but whichever market you choose, you will need to know it inside out if you want to have a hope of turning a profit. Having said this, there are various techniques that you can adopt that increase your chances of making money via spread betting, so in this article, we are going to take a look at how to make spread betting work to your advantage, so read on to find out more.
Use a demo account
Before you start spread betting with your hard-earned cash, it is important that you set up a demo account so that you can start to learn the nuances of the market that you intend betting on, and you can get an idea of the market trends and the volatility. You can bet as if the money was real and can see whether your strategy turns a profit before investing real cash. If you find that you quickly lose your demo cash each day, then you can learn from your mistakes without the pain of losing real money.
But before we continue, you need to answer two important questions - what is spread betting in its essence and how does it work? Learning this, and how to gamble in general, is step one of your journey. Make sure you bet as if the money was real, based on fundamentals, rather than just throwing money at it willy-nilly, which will teach you nothing. This part of the process has to be part of your learning curve, so make sure you take advantage of it wisely.
It is all very well thinking that you are a financial guru who has a deep understanding of many different financial markets, but if you really were then you would be sitting on your yacht in the Caribbean sipping cocktails. The very fact that you are spread betting in the first place shows that you want to make money, so it is, therefore, important to concentrate on one or two markets that you know inside out rather than spreading yourself thinly. Focus on what you are experienced in, or what you are interested in and research the market thoroughly. You need to understand how your particular market will react to news flows, economic data releases, and even volumes of traffic, as these metrics will impact how the asset behaves.
Planning is key
When you start spread betting it is important to choose liquid markets with high transactional volumes so that you can take advantage of tight spreads, as the larger the spread the more money you will lose. Beyond this, you must have a strategy in place rather than just placing bets randomly otherwise you will quickly lose your capital. Divide your funds up into small pots and bet with each one separately so you are never left without anything to bet with. Some traders will bet up to 10% of their pot in one go, whereas others prefer smaller bets of around 1%. There is no hard and fast rule, but once you come up with a strategy, stick to it, otherwise, you will end up throwing good money after bad.
Managing risk is key in all walks of life, and none more so than when you are spread betting. In order to manage risk, you need to use the tools available to your advantage and this means using technical data. You will need to set stop losses on all your trades to limit what you can lose and also to bring discipline to what you do. As a novice, you might not understand where to place these stops, so you will need to learn to interpret technical charts so that you can understand whether there is support or resistance in your particular market, which will help to establish whether it is trending or ranging. This is important because you want to be following a trending market, not betting against it, unless you can see a fundamental reason why. If a market is constantly trading within the same range, then you can identify where the top and the bottom is and can buy or sell accordingly.
Only bet what you can afford
Perhaps the most important message is this last message, and that is to only bet what you can afford. Over the years there have been countless stories of people being made bankrupt when they have chased their losses on the financial markets. If you find yourself in a losing position, then pull out of that market, understand why you have lost money, and learn from your mistakes. It may mean a bit of eating humble pie, but at least next time you will know what not to do and you stand a better chance of reversing your fortunes and making money.
As we have learned, spread betting can be made to work to your advantage but you have to prepare well and you must understand your chosen markets like the back of your hand. Use demo trades initially to learn your craft and focus on one or two markets that you have experience in. Plan how you will trade and make sure not to put all your eggs in one basket. If you conduct excellent risk management then you can set stops to limit your losses and can draw on technical data to help you make informed decisions, and most of all, only bet what you can afford. Good luck!