Can I Expect Instant Big Wins in Spread Betting?

I remember talking to a colleague of mine one Monday morning about the joys of spread betting in an attempt to point out the obvious benefits that this had over stock and conventional forex trading. That evening he went home and opened an account, deposited 100 pounds and placed a short trade on the Euro with a 20 pip stop loss (i.e. the entire value of his account). Overnight the Euro fell steadily as the Asian markets became nervous of the increasing fragility of the Eurozone economy and by 9am the following morning he had already achieved a forty pip profit. He held on to that short for the rest of the week and at the end of each day he would update us on its value. By Friday afternoon he had made 500 points profit with a value of two and a half thousand pounds.

Striking Lucky?

This was clearly a huge win for a first time spread bet and, needless to say, he was very pleased with himself. The problem was that several other friends and colleagues tried a similar week-long punt on the market and ended up losing their deposits. The fact is that, with a bit of luck, and the determination to hold on to spread bet you can occasionally make a lot of money. New spread traders will experience instant big wins but can just as easily experience instant big losses. The problem with the bet that my colleague took was that it was all-or-nothing, if he had timed it badly and the market reversed slightly, he would have blown his entire account. It is unlikely that he would have put another deposit in after getting burnt and he may have given up on spread betting altogether. Most new traders will experience overexposure like this when trying to go for the big gains. The key to successful spread betting, however, is limiting your risk and maximising your consistency.

Limit Your Trading Risk

Limiting risk means trading within your means and making sure that you can trade another day if disaster strikes. Typically, this means limiting the amount that you risk on any one trade to only a few percent of your available trading capital. For my colleague this would have been perhaps a risk of up to five pounds (5% of his capital) which would have meant a bet of just 25p per point which is available from some brokers. Although his win would have ‘only’ been £125 he would still have had £95 available to trade if it all went wrong. Consistency is important in order to continue to grow your trading account, increasing the size of your trade as your capital increases.

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Photo Credits: http://www.flickr.com/photos/baslow/1242760063/

Winning very large amounts of money instantly is what many new spread traders want to achieve although many are left disappointed. Spread betting is like all forms of trading and should be treated as a business rather than gambling. A gambler is likely to make a large amount of cash from one lucky bet whilst a spread trader will place bets consistently on high-probability setups and with a limited amount of investment. Most of the time a gambler will lose money whilst a spread trader will look to maximise the cyclical nature of markets by using a strategy and well-tested method of betting. Whilst gamblers will always lose to the casino in the long term, spread traders try to find an edge in the markets to put the odds in their favour. As with any business, longevity is the key to success and the key to success is reducing your exposure in any one bet.

This article has been written by Tristan from www.spread.co.uk and he is interested in how to make profits in spread betting, and whether it can be a quick fix or a long term project.

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