We recently looked at the loss percentages of spread betting and CFD brokers. But why do so many traders lose money?
I’ve been a broker for nearly 20 years and dealt for pretty much every client out there. From the absolute spread bet beginner to $100m hedge funds.
In a nutshell it is because they are amateurs. The tax advantages of spread betting only apply to individual investors. So professional traders will be trading through a commercial vehicle or tax-efficient structure anyway.
So by its very categorisation of the spread betting client base, they are the least likely to make money.
The second reason is that clients do not, in general, follow some fairly basic rules of investing i.e don’t overleverage, don’t over trade, cut your losses and run your profits.
- Related guide: Spread betting strategies that can help you make money
Overleverage when spread betting
This is an easy mistake to make as when you think you have a good trade idea, you want to try to make as much money as possible.
You set your trade to take up as much margin as possible. The problem with this is that it doesn’t leave much room for error. In trading, you need breathing space for when a trade does not go your way straight away. If the trade moves against you and you can’t afford to run a small loss to start with you will be on margin call and the broker will close your position because you can’t afford it.
Overtrading on spread bets
There is not always a trade in the market and trading just for trading’s sake will lead to quick losses early on. Traders who are new to the market must be patient and wait for the fundamental and technical indicators to be right before execution.
Cutting your losses and running your spread betting profits
This is a key element of trading. Most professional traders only get it right about half the time. But they win because the can spot a good trade and let it run. More importantly, they can admit when they make a mistake and cut the position.
This is vital strategy and most new spread betting customers get too emotional. They hope on hope that a bad trade will turn around, but get too excited or scared when they turn a profit and close it out too early.
- Here’s how to spread bet for a more detailed insights into how spread betting works and the best strategies to use.
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
