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It recently emerged that 83% of traders lose money when they spread bet. This is a fairy unsurprising statistic as presumable it does not take in account clients that hedge their positions or adjust for weather a client is professional, semi-professional or a complete beginner.
So how do you spread bet successfully?
Here are some tips that should help you spread betting successfully. We’re not saying this is a magic formula to make money spread betting, but it is a good foundation to start.
Understand that risk management is one of the most important aspects of spread betting or CFD trading. Whether your position makes or loses money is basically a red or black roulette bet. Basically ride the trend. The odds are slightly in your favour because you can use fundamental and technical analysis to look at a stock or chart and say to yourself (a principle that Fuller Money subscribe to is that) it looks as though it’s going up so will probably continue to do so. Or if you think the trend is coming to and end then bet against it. What ever happens you may probably be right about half the time at some point or other. i.e. you will be instantly right or wrong, or it may take a while for you to be right or wrong, or you may never be right or wrong.
Joshua Raymond, when he was at City Index, wrote a piece on the fact that the majority or traders make more winning trades than losers. So if that’s the case why do 83% of trader lose money if most of their trades are winner.
One has to therefor assume that it’s bad risk management. Which means that trader take small profits and run big losses.
So what can you do to mitigate this?
Here are three tips to increase profits and minimize losses:
- Use a stop loss to protect your positions when you are not online.
- Always keep at least 50% of your risk capital (account balance) in cash (not in margin)
- Compare spread betting brokers to see who has the best spreads and tools.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.