Financial spread betting has exploded in popularity since its creation in the 1970s, giving rise to new traders in their thousands and, along with them, a new generation of novice traders like never before. Whereas spread betting was once the reserve of sophisticated investors, it has now become more accessible that ever before, thanks to the advent of the Internet and mass-marketing by UK spread betting companies. The difficulty with novices trading spread betting is that while the rewards are widely discussed, the real extent of the risks and potential losses on the table might not be immediately obvious. Furthermore, with the tendency to make common, costly mistakes, novice traders can quickly find themselves in difficulty if they don’t take the time and effort to trade effectively and improve.
Becoming a successful trader is the short-term aim for many in financial spread betting, as indeed with other trading forms. The initial allure of high returns from leveraged trading is appealing, but in truth the financial markets are a difficult place to do business, with only the very best able to make a success from their time spent trading. This means hard work and, more importantly, smart work in order to identify the best path for trading. While statistically most traders will fail through the early stages of their career, there are several factors you need to consider to avoid following suit.
Devising A Functional Strategy
Any successful spread bettor needs a successful strategy, and one that is capable of performing consistently and reliably, time after time. Having a strategy in place that is tested, tweaked and refined to improve performance is an important part of building a solid platform from which to trade, and in direction traders towards markets, assets and positions that have a chance of yielding a profit. There are dozens of strategies that are commonly implemented, plus countless twists and variations that traders can deploy to best effect. Through trialling different strategies, ideally in the sandbox environment of a spread bet demo account, traders can work out whether or not they represent a viable approach.
Researching Profitable Opportunities
With the help of your chosen strategy or strategies, any would-be successful traders can increase his chances of a profit by researching markets, spread bet positions and worldwide goings on thoroughly. The more you know, the better your ability to determine potentially successful, lucrative trades which will help shift the weight of your average account performance. The more profitable opportunities you can research, and the better the accuracy of your trading signals, the better chance you have of making a success of your trading account. A viable account needs a constant stream of viable opportunities, and there can be no substitute for hard work in generating signals with the necessary reliability.
Managing The Risks
Equally as important (if not more so) than putting things right on the positive side of the market, traders need to remain conscious of the risks of trading, which are particularly aggravated in the example of financial spread betting. The more competently you can manage and keep on top of the risks and threats posed to your account, the better your chances are of succeeding – keeping the inevitable losses to a minimum is what successful trading is all about. The use of stops and more thorough planning can help achieve this end, along with more sensible capital management to avoid exposing too much in one go.
The statistical chances of becoming a successful trader are not in your favour, but that doesn’t mean the markets are off limits. What it does indicate is the complexity and difficulty of successful trading, and the need for constant presence of mind, strategy and trading logic in order to turn a profit. In a nutshell, financial trading isn’t an easy, quick fix, but for those determined to trade professionally and consistently, there are opportunities out there to build a successful and profitable trading portfolio.
A Few Ideas For Improvement
Don’t Cut Profits and Give Losses A Chance
The first important mistake to avoid is more behavioural, and on many levels it is an instinctive response for traders who haven’t been initiated into more profitable ways. Novice traders can fall into the trap of banking profits as soon as they emerge, in the mistake belief that this is to the benefit of their account. This means that positions with the potential to grow and develop are choked off too early.
Conversely, traders feel the same urge in reverse towards their losses. The mentality seems to commonly reflect a desire to give losses a chance to recover, while snapping shut the window of opportunity in times of profit. In actual fact, the best policy is to reverse these concepts, such that losses are exterminated as quickly as possible and profits are allowed to grow and develop to their fullest extent.
Take It Easy
Another common error into which traders can easily slip is getting emotional about trading outcomes, and making decisions on the basis of hunches, inclinations and gut feelings rather than strategy. While there is no doubt room for trading off softer cues with experience, traders who don’t ensure they trade logically, consistently and objectively can find themselves running into cost difficulties fairly quickly. Remember that while you might not feel like you’re gambling, making decisions on any basis other than raw, calm trading logic is likely to be a high-risk technique.
Control Your Leverage
One of the main attractions on the table for financial spread traders is the degrees of leverage on offer, which can be more or less weighty depending on the original stake amount. In spread betting, each point in movement is a multiple of the original stake, either positive or negative, with unlimited earnings and liability on the table. This makes it easy for traders to get a bit too bold, and to open positions that in reality they are unable to afford – either individually, or on aggregate across the account. This is known as overleveraging, and in these circumstances it only takes one or two key positions to fall for the empire to come tumbling down.
Avoid Luck In Spread Betting
Financial markets are unpredictable beasts, with the potential to make and break fortunes every day. For the most part, those engaged in trading the markets through financial spread betting or any other channel do their level best to ensure that they research the best positions. But while this degree of effort is commendable, and indeed encouraged for anyone looking to make a success of trading their capital in financial markets, how reliant is it on luck? Furthermore, can traders really engineer positions and markets in a way that removes the naturally unpredictable element of chance from the equation?
Who Needs Luck Anyway?
Luck undoubtedly plays a part in trading the markets. As the expression goes, you can lead a horse to water, but you can’t make it drink – in other words, you can research and strategies and analyse and decide until the cows come home, but it’s ultimately the markets that decide your fate. This is an unavoidable element of trading, so it is up to the individual traders to structure his account in such a way as to minimise the impact of ‘bad breaks’ and to stack the odds more heavily in favour of generating a return.
In practicality, while the component of chance accounts for a small percentage of trading success or otherwise, it is the preparation that goes in to finding out about the markets and deciding on how best to trade positions that contributes most successfully, swaying the balance in favour of skill over good fortune.
Luck vs Skill in Spread Betting
Most successful traders inherently know the difference between luck and skill, and can say with confidence that their trading abilities and expertise outrun the markets and chance in enough significant to make a profit, but how can less experienced traders be sure they’re operating skilfully and not trading on a whim?
The difference lies in intent and hard work. Those that choose to rely on luck usually do so out of a lack of a strategy, or a poor understanding of trading theory, which ultimately translates into a very short trading career. Instead, the focus should be on developing the analytical and interpretation skills necessary to conduct research into the markets and establish viable, potentially profitable positions as a result. Only by forgoing luck and taking a more measured, reasoned approach to trading the markets can traders hope to build a sustainable portfolio for the long-term.
Everyone needs a bit of luck – whether it’s to trade the markets or to cross the road safely. But some people rely on luck more than others, and while chance can’t be entirely eliminated traders should take active steps to move towards more knowledge, better-informed decisions and more competent trading. By seizing control of the portfolio and finding opportunities for profit, traders can rely less on luck and more on their own expertise, effort and ingenuity – far more likely the winning combination.
Never stop working on improving your spread bets and always try to learn something new.