Points to Watch Out For: Spread Trading Tips

In this section I will give you some other spread trading tips that are worth remembering. Some may not be applicable to the trading company you are using but they are easy mistakes to make and it could save you money if you are aware of them. They are applicable to spread trading on the Internet. Some may sound foolish mistakes but believe me that in the heat of the moment when trading, it is very easy to make mistakes like these. The key is to take a few moments to gather your thoughts and have a mental check list BEFORE you hit the trade button.

  • When you close a trade, be sure to enter the correct amount per point. Example: You are long £5 per point on XYZ and £12 per point on ABC Ltd. XYZ suddenly shoots up in price and you decide to close the trade because you fear the price will fall again. You hit the trade button and quickly close the trade by selling at £12 per point (getting the two trades confused). You don’t realise it immediately and the next thing you spot in your “Open positions” is that you are now short £7 per point on XYZ.

If you do things like this, you cannot phone the trading company and say “I made a mistake” or “I didn’t mean to”. You have to accept the trade and decide whether to close it immediately for a loss or to cross your fingers that it will be lucky for you.

  • Using the above example, let’s say that you intend to close the trade on ABC at £12 per point and you sell £5 per point by mistake.

Firstly, it is perfectly acceptable to “scale down” (reduce) a position. So the system will not indicate that anything is wrong but of course you will not have closed the position. You will be left with £7 long instead of £12, having closed £5 of the total £12 long on ABC.

  • Take particular care if you are trading very small positions to gain experience. You will not be the first person to close a 20p long position by selling £20, leaving you short £19.80 per point!!!! Not as difficult to do as you might think and certainly not a good idea!
  • Now let’s assume that you intended to reduce your £12 position to £7 and you had a stop or limit order on the £12 position. Once you alter the open position ALWAYS check the stop or limit order to ensure that it is correct. If for example, you had a stop for £12 and it does not AUTOMATICALLY reduce to £7 when you partially close, you will find that if you get stopped out, you will actually close your £7 position and simultaneously open a new position short for £5. Not a good idea!
  • On a similar note, if you have placed a stop/limit on a position and then manually close it rather than waiting for the stop/limit to trigger, just check to ensure that the stop/limit order has cancelled.
  • Adding to a position. It is not physically possible to “Add” to an existing position but you can always open an additional position so that you have two positions running on the same company or Indices.

This situation requires thinking about because it can give you one or two problems if you are not careful. Example: You are long on FTSE 100 June £5 per point and it is in profit. You decide to add another £5 long so you open another £5 long on FTSE 100 June. You then decide that you are not happy with your total of £10 long and wish to close the second trade that you recently added. With most trading platforms you can’t! The system will automatically close the first trade and leave the second one running. This may be ok for you but it may not.

  • There is a way to gain full control. If the first £5 position is FTSE 100 June then you can “add” a £5 position on FTSE 100 September. You will then have control over each individual trade. The disadvantage is that you may have to pay a couple of points wider spread on the September contract.
  • If you are going to trade Forex (Foreign Exchange – currencies), commodities, metals etc make yourself familiar with how it trades. A “point” might be 0.001 of a penny or something similar. In other words you would be betting £x per point for each move of 0.001.