Could Spread Betting Endanger My Finances?

All forms of speculation involve an element of financial risk. Spread betting is no exception to this with the similar principle of risking an amount of financial capital in order make money. This risk, however, can be successfully controlled given a combination of good money management and through using the tools available on every spread trading platform. Spread betting does not need to endanger your finances and does not necessarily need to expose your capital to more risk than any other form of financial speculation. Learning how to control and manage risk alongside a solid trading strategy will allow your financial capital to grow with minimal risk to your account.

Develop a Trading Strategy

Developing a decent trading strategy is one of the first requirements for successful and low-risk spread betting. A trading strategy should be back-tested thoroughly in order to assess if it has the potential to make money. Whilst genuinely good trading strategies can be paid for, it is possible to find some very good methods of trading for free on many websites and forums. Taking a strategy and applying it to your own specific trading preferences will make it far more likely that you will stick to the rules and follow the strategy successfully.

Once a decent trading strategy has been developed and tested it is essential to apply a robust money and risk management strategy to this. Money management is essential to protecting your trading capital, and it involves limiting the exposure of each spread bet that you make. All spread betting platforms offer the ability for traders to place stop-losses on each bet which provides a maximum loss that any single bet can incur. Stop-losses not only prevent a losing trade from getting out of control and potentially putting a larger portion of your finances at risk than originally planned, but they also prevent emotions getting in the way of your trading strategy. Employing a stop-loss provides an objective and automatic closure of a position, applying this to your money management strategy the level of risk that a stop-loss exposes you to should ideally be no more than 2% of your entire trading account.

The 2% Rule

Limiting the exposure of your trading account by enforcing the golden 2% rule will mean that your spread trading has the maximum opportunity to be successful. Although this sounds like a very small percentage to accounts with only a small deposit, the growth prospects of an account that risks only 2% are excellent. Assuming that an even risk-reward ratio is applied to every trade, this would also mean that a trading account has the potential to grow by 2% with each trade. When an account grows and is compounded by 2% with each successful trade it has the potential to grow very effectively.

Finances used in spread betting should be able to be lost without serious impact on a trader’s lifestyle of livelihood. Many spread betting brokers reinforce that funds used for spread betting should be affordable to lose. This not only removes the pressure of spread betting with the potential of financial ruin should all funds be lost but it also prevents this worst-case scenario of blowing an entire spread betting account. Many new traders experience losses and spread betting is no exception. By limiting the repercussions of such a risk to funds which are affordable to lose, spread betters enhance their potential to become successful whilst avoiding any prospect of financial ruin.

This article is written by Tristan who is interested in spreads and how you can fit it in your budget. With successful management it can work very well.

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