Spread betting for beginners: 5 do’s and don’ts

If you’re new to financial trading and looking to explore an exciting way to benefit from price movements, spread betting might be the right choice.

Before diving in, learn valuable insights and tips from this article to help you get started on the right track of spread betting.

5 do’s to be successful in spread betting

Tips on spreading betting are valuable guidance and strategies to help us make informed decisions and manage risk effectively.

Here are the five tips you must do to increase your chances of success in spread betting:

1. Educate yourself with the concepts regarding spread betting

Before you start spread betting, you must comprehensively understand the financial markets and the specific instruments you intend to trade. You may research fundamental and technical analysis, market indicators, and economic factors affecting asset prices.

Suppose you have an interest in trading in forex pairs. Familiarise yourself with interest rates, geopolitical events, and economic reports that can influence currency values. For stock indices, learn how global economic trends impact their movements.

You may also consider enrolling in online courses, reading trading books, or following reputable financial news sources. A strong foundation of knowledge in spread betting will enhance your decision-making capabilities.

2. Choose a reputable broker

Your choice of a spread betting provider can significantly impact your trading experience. It would help if you trade with a broker regulated by relevant authorities, have a good track record, and offer competitive spreads and a wide variety of trading instruments.

You may check brokers like markets.com, known for their powerful tools, user-friendly interface, and extensive market coverage. 

For you to assess if a broker is reliable, you can compare each broker’s fees, trading platforms, and customer reviews. Additionally, you must ensure that the broker is authorised by a respected regulatory body, such as the UK’s Financial Conduct Authority (FCA).

3. Start with a demo account

Demo accounts provide a risk-free environment for practising spread betting. You can trade with virtual money, allowing you to get familiar with the platform and develop and refine your trading strategies.

You may practise entering and exiting trades, setting stop-loss and take-profit orders, and managing your portfolio. You must spend several weeks or months on a demo account until you consistently achieve profitable results and feel confident in your abilities.

4. Set clear objectives and a trading plan

If your goal is to generate a 10% annual return on your capital, your trading plan should detail how you intend to achieve this, including the assets you’ll trade and the risk management tools you’ll use.

Your trading plan may outline your risk tolerance, preferred trading hours, and entry and exit strategies.

We all know that emotions run high every time there is an up-and-down of prices in your assets. Stick to your plan and understand the trading psychology behind this sentiment to avoid making impulsive decisions.

5. Use risk management tools

You should protect your capital by implementing risk management tools such as stop-loss orders and take-profit levels.

If you’re spread betting on a stock and want to limit your potential loss to 5%, set a stop-loss order at that level. Similarly, define a take-profit point to lock in profits when the market moves in your favour. You need to be disciplined and avoid moving stop-loss orders farther from your entry point to “wait it out.”

5 don’ts to avoid while spread betting

If you want to prevent potential pitfalls, protect your capital from excessive risk, and maintain discipline, avoid these five trading activities before or during spread betting:

1. Don’t overleverage

Leverage allows you to control a larger position size with a smaller amount of capital. While it can amplify profits, it also increases the potential for substantial losses if the market moves against you.

Let’s say you have £10,000 in your trading account and use 10:1 leverage to take a position worth £100,000. If the market moves against you by just 1%, you lose £1,000, which equals 10% of your initial capital.

As a beginner, you can use leverage conservatively. Stick to lower leverage ratios, avoid overextending your positions, and ensure your risk per trade is within your risk tolerance.

2. Don’t chase losses

Chasing losses is a typical emotional response to a losing trade. It involves impulsive transactions like betting more capital to recover the lost wealth, often leading to more losses.

You must stick to your trading plan and avoid making impulsive decisions after a loss. Step back, assess your strategy, and wait for favourable trading opportunities.

If you feel that spread betting on a specific asset is complicated. You may select other asset classes, like trading in contracts for difference (CFD) indices and shares. 

3. Don’t trade without adequate funds

Insufficient funds in your trading account can lead to margin calls, where your broker demands additional funds to cover losses. Failure to meet margin calls can result in forced liquidation of your positions.

Let’s say you start trading with £5,000 but take positions that require £10,000 in margin. A losing streak could lead to margin calls, and if you can’t meet them, your broker may force the liquidation of your positions. 

You must ensure proper capital allocation to comfortably cover potential losses and margin requirements. Avoid overleveraging and risking more than you can afford to lose.

4. Don’t rush into complex financial products

Complex financial instruments can be challenging for beginners to understand and trade effectively.

A rookie trader might start with straightforward currency pairs and then move on to trading futures on stock indices. However, the intricacies of futures can lead to significant losses without fully understanding.

You can begin with simpler instruments like major currency pairs, stock indices, or commodities. As you gain experience and knowledge, gradually explore more complex products. You can also use demo accounts to practise trading complex instruments before risking real capital.

5. Don’t ignore risk management

Risk management is essential in spread betting to protect your capital. A significant and rapid loss will happen if you neglect setting stop-loss orders or disregarding risk limits. 

You might hold onto a losing position without a stop-loss order, hoping it will turn around. This is an example of a trader’s mistake you should refrain from practising. 

Spread betting does not act in pure luck. An intensive effort is made to make it successful. So, it would be best to use stop-loss orders to limit potential losses on each trade. This helps to minimise losses and protect capital, allowing traders to continue to pursue profitable opportunities without risking too much on any single trade. 

Overall, effective spread betting requires a comprehensive approach that takes into account a wide range of factors, including market trends, technical analysis, and risk management strategies.

Start maximising your trading potential with spread betting at markets.com

Spread betting can be rewarding to engage with financial markets, but it comes with risks. You will learn much about trading through spread betting and mitigate risk by following the dos and don’ts we have discussed. 

Patience, education, and discipline are your allies in this exciting but challenging endeavour. You may utilise markets.com’s news analysis and insight-driven trading tools to help and guide your spread betting efforts. 

With various asset classes out there, you can diversify your trading portfolio by choosing your preferred financial securities on markets.com

Discover the benefits of trading with markets.com and begin your spread betting journey today. 
 

“When considering CFDs for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.”