Many investors are interested in spread betting, because they would like to take advantage of the high returns and quick profits that it can generate. This is an exciting form of trading, with almost unlimited scope as far as the markets you can invest in, and the profits (or losses) that you can make. The exceptional returns of spread betting come with a downside, though, in the form of high risks. Newcomers to spread betting need to educate themselves, and learn to manage their risks. Here are some tips.
1. Research Extensively
Before you open any position, do as much research as you can on the market you are targeting. Read all the latest news. Look for earnings announcements that came out recently, or which are due to come out soon. Examine key economic indicators, and how those could affect your position. The more you know, the greater your potential to make a good trade.
2. Watch the Charts
Always watch the charts for any stock, index, or other market where you want to place a bet. You need to know if there are any key signals, such as a price which is meeting either support or resistance. Look at moving averages, stochastics, and the relative strength index, and see if you spot any signals. Once again, knowledge is your friend.
3. Make a Plan
Always have a reason for any trade that you make, and decide your plan ahead of time. When you decide to make a trade, get into the habit of writing down the reason you chose it. Write down where your stop loss will be, and why you placed it there. Also write down where you plan to take your profits, and why. Having this decided up front gives you a disciplined approach to investing, making sure that every trade is well thought out, rather than random spur-of-the-moment trades.
4. Practice First
Before you execute any real trades, it is smart to practice first with some “paper trades”. Do the research and make the plan, just as though you were going to make the investment, but don’t actually put any money into it. Follow the position through to its outcome, and see what would have happened. Practicing this way will go a long way to getting you comfortable with how spread betting works, and what you may see when you are in the market for real.
5. Use Different Order Types
You have a plan to buy or sell something when the price reaches a certain level. You could do this yourself online, but only while you are awake and watching your computer. Since things can change rapidly with spread betting, using different order types can help you make the trades you want, even if you are asleep at the time. A good place to find out more is http://www.independentinvestor.com/spread-betting/orders.php. Some examples of different order types are Guaranteed stop loss, Guaranteed stop limit, Good till cancelled, Trailing stops, and Market on close orders. Using these order types effectively can help you manage your risks and maximize your profits.