Useful tips for financial spread betting success

Useful tips for financial spread betting success
Spread betting is becoming an increasingly popular tool with retail traders and investors. It enables traders to speculate on the direction of a share price without actually purchasing the share, and can be an effective method of earning tax-free returns. However, spread betting is effectively gambling and therefore comes with risks attached. Here are a few tips for maximising your spread betting potential while managing the risks.

1. Understand your subject: Make sure you are thoroughly acquainted with financial spread betting and the associated risks before you take the plunge. If you are just starting out as a spread better, use a company which advertises itself as lower risk and beginner friendly, such as Finspreads. Once established, you can progress to using a spread betting company more suitable to seasoned investors, such as City Index.

2. Start slow: Beginners should start their career in spread betting by placing small trades on slow paced FTSE 100 stocks, preferably liquid blue chip stocks. US stocks are generally volatile, as is Forex. Indices are also too random for beginners to guess on. Never place all of your stock on a single trade.

3. Trust your instincts: Keep your ear to the ground and listen to the news happening on the financial markets. Any price movement is ok - as long as you pick the right direction, but if the underlying share price moves in a direction you haven’t backed then be sure to have finances in place to cope with your losses. Never place a small bet on an underlying financial instrument simply because you can - remember that you are set to lose significantly more than the original ‘buying’ price.

4. Keep a larger account: Spread betting companies such as Barclays Stockbrokers or City Index will allow you to open an account for as little as £200, but its advisable to start a new account with no less than £1,000. This will allow you to absorb more losses. With a small account, it is advisable to use around 5 per cent maximum risk.

5. Limit your risk: Use a stop loss on your bet to avoid losing significant amounts of money. However, you should not set your stop loss too close to the current market price or your will get stopped too often. Stop losses are the best way to minimise the risk associated with spread betting.