Spread betting techniques are very similar to trading techniques, and once you have a basic understanding of how markets work then you can apply the techniques no matter what financial instrument you are dealing with. Spread betting has the advantage over many other ways of trading in that it gives you a great deal of leverage for your money, and any profits are not subject to capital gains tax because they are regarded as the winnings.
If you are new to trading, there are some basic rules and recommendations that will help you to succeed. The first one is that you must be careful how much you can lose on any particular bet. Typically, traders will aim not to lose more than 1% or 2% of their account if the bet does not work out. This may sound very small, but it allows for the situation where you have several losses in a row, and lets you carry on trading even after a bad run.
The second concept to incorporate in your spread betting techniques is to estimate the risk to reward ratio. This is a measure of how much you think you can profit from the spread bet compared to how much you may lose. Unless you can make two or three times what you may lose, the bet is not worth taking up. This of course assumes you are disciplined in the use of stop loss orders and don’t have the tendency to move your stops further away from your entry level once a spread trade is opened.
A third guideline is that you take care not to risk too much of your account in one type of financial security, or market sector. This is because there is a correlation between the financial instruments in that market sector, and even though you are spread across several different companies a problem in the sector could take you down as if you had risked much more than 2%. Spread betting helps avoid this problem because you have a large choice of financial markets on which you can bet, but you should still be careful about correlations between performance.
To be successful at spread betting you need to study the principles of trading, and in particular how markets can be analysed to try and anticipate future direction. The techniques of technical analysis can be applied to any financial markets, and therefore you can use them whether you are spread betting on stocks, indices, currencies, or commodities.
You should study trading techniques to know when you should be in or out of the market. A frequent beginners’ mistake is to feel that they should always have a position in the market, otherwise they are not trading. The truth is that sometimes there are only second-rate trading opportunities available, and if you take these up you will achieve second-rate results. You should not be shy to wait for the right opportunities to come.
Above all, you need to have a good familiarity with your trading platform and a good charting program to apply the analysis. Depending on the level that you want to research, you may find that your broker’s charts will be adequate, although you can get better facilities from third-party software.