Why do you trade? Because it beats working for a living? Because it adds some extra income (ideally)? Because you enjoy it, making your money work on your own terms rather than someone else doing what they think is right? Or is spread betting for you simply money making?
Possibly all of the above – but the real reason is probably a bit longer-term; it’s about having enough money to be secure, and to make those around you secure.
“It takes such experience, patience and skill to trade effectively/consistently, and so few new traders have the right approach, or think its easy money… Almost every conversation I have with the active Forex crowd goes along the lines of ‘I blew up my first three accounts because I just didn’t understand _______, my money management was bad, and the market just went against me, but now I’m sure I’ve got the answer cracked…’ I often wonder how long it will be before they’ve ‘blown up’ again.”
If you happen to have a family, then their future is one of the key reasons why we work at our jobs and don’t just give it all up and become a surf bum or itinerant beer taster, or whatever it is we would do if we had only ourselves to worry about. Making money spread betting is the purpose of the exercise, after all. But it is not so simple as opening an account and throwing money at it. There are certain techniques and strategies that you must learn so that you are not simply gambling, but taking a more measured approach.
However, the shift from trading beginner to making a living out of this game is one huge learning curve, newbies don’t know a moving average from a fibonacci level and here I can really see why guys like Vince Stanzione do well in this area, the thought of sitting at home making a grand a week sounds ohh so sweet and is enough to induce most people into the world of trading. But really what they are doing is entering an ocean filled with the greediest of sharks who will chew them up and spit them out in a second without a moments thought: just look at the last few months where even seasoned professional traders are struggling to make a profit.
I’d imagine the people who’ve been hurt the most in the markets these days are the ones who’ve lost money spread betting. It can give market participants a bad name with the public, and certainly doesn’t help with the “gambling” image, when people treat it recklessly.
Here are some tips to help you get started and increase your chances of coming out ahead -:
- Know your market. Spread betting has the advantage that you can place a bet on virtually anything you or your broker can think of. It is easy to be distracted, and to think that if you do not win betting on indices, perhaps you will get better luck if you turn to Forex. You need to know what you’re betting on, and have some basic knowledge of how the price moves if you are to make the best of your bets.
- Control your spending. When you are making bets that involve a small amount of money per point, it is easy to think that you are not risking much. One of the keys to improve your chances at making money spread betting is to know exactly how much you are risking, and how much you stand to gain, from any bet that you make. It should be part of your routine to work this out before you put out any money.
- Let your winners run. An old traders’ saying, this means to allow any trades that are making a profit to continue, and not to close them quickly. Sometimes, particularly if you have had some losing bets, there is a temptation to cash in and take a decent profit from the next winning bet. This gives a warm feeling, putting money into your account. What this maxim means is that you should not cash in just because you are making money, but you should take a view of the bet and whether a trend might continue, making you more money if you leave the bet in place.
- Cut your losses. The corollary of the last phrase, another key to making money spread betting is that you do not lose too much when you have a bad spreadbet. Whenever you place a bet, you should have a plan for closing it, if it goes in the wrong direction. And once you have planned this, you must be sure to follow through, and exit for a loss when you need to. If you need any incentive to do this because you find it difficult, you simply need to think how much more difficult it will be if you instead let the losses grow, and finish up losing twice as much. It’s no use stamping one’s food and saying my property is worth X if it’s only worth X-Y to a buyer. My property doesn’t sell in isolation and ultimately is only worth what someone will pay, not what I elect to value it at. Same with stocks. Someone on the BEH thread said that they had topped up at an ‘unbelievable’ 51p. They will be hurting today. People perceive something a “bargain” because it’s at a lower price than previously available. That tells me the price is falling. I had a “bargain” buy in EXI at 204p, I got stopped at a small 7 point loss. It was an even bigger “bargain” at 188p which resulted in an 8 point loss. It’s allegedly a “bargain” again at 114p but I’ve learned to wait and buy when it’s going in the desired direction. If something is a “bargain” because the price is falling they can keep it. If we lose 10% we only need to make 11%, if we lose 30% we need 42% and if we lose 50% we need make 100%. That’s why we need tight stops. I learned that the hard way in 2011.
- Develop a winning strategy or system. No matter how well you may know your market, if you are looking at the charts and making snap decisions on what bets to place, then your spread betting career may be short-lived. If you are serious about making money spread betting, then you need to study technical analysis, and learn what signals and indicators you can use to give you a better chance of a winning trade. If you stick to a plan, you also have a record of why you make each bet, and you can look back and try to improve your performance over time.
“‘Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery. (Mr Micawber in Dickens’s David Copperfield).”