How To Spread Bet

Spread betting is a way to make money in a falling market or to profit from knowledge of the intricacies of how the financial system works. However, with such a wide range of markets to pick from it can be difficult to determine which option is right for you.

There are a number of different factors to take into account including how much time you have to devote to investing, how much money you have and your attitude to risk.

However, regardless of the above, there are some key tips that apply equally to every trader.

It shouldn’t be a chore

Firstly, to be profitable and stand any chance of making some money, which after all is why everyone primarily invests, you will need to get to know your market. This may sound obvious but if you find your subject boring you will be less inclined to put in sufficient research or you may find it more difficult to retain key information.

It is, therefore, a very good idea to pick a subject that you can develop a passion for, or at the very least, a passing interest. It doesn’t matter if you know nothing about the subject to start with; your attitude is far more important than your knowledge level at the beginning.

Quality not quantity

Secondly, do not spread yourself too thinly. Experts suggest that you don’t put all of your eggs in one basket, but that doesn’t mean you should wildly diversify. Spreading the risk between different companies within the same sector is an alternative option that allows you to use the knowledge you have built up without relying on the fortunes of one set of shares.

Think carefully about the market you want to spread bet before ploughing in because some may well have qualities that are unsuitable to your investment approach. For example, forex and indices are both particularly fast moving and prone to volatile swings. With spread betting based on losses per point, this can result in heavy losses. Whilst this can also bring healthy profits, it comes with a significant dollop of risk.

Up or down?

But of course, deciding what market to spread bet on is only half the decision. You must also decide whether to go long or short. The ability to go short is one of the key advantages to spread betting. Making money in a falling market is far more difficult with conventional stocks and shares and is more akin to simply playing the Lottery.

Whether you are going long or short may be partly determined by the length of your bet; you may believe that a certain stock or commodity will suffer in today’s market but will recover in the coming days, hence a long bet. A position that you intend to close on the same day would be placed as short in the same market.

How to pick

Most brokers offer a range of charting tools and technical data that can help to analyse the general trend. That isn’t always as obvious as it may sound, especially if it’s about to make a retracement. There are a myriad of different indicators available for use and which ones you select depends on personal choice. One word of warning, however. Don’t rely on more than four as too many indicators can cloud the charts making it more difficult to spot the signs.

As well as using technical analysis, it is a good idea to use fundamental information too. This means keeping abreast of the news and global events. Markets often have a knee-jerk reaction when an event occurs and it can be easy to be caught out.

Whilst every trader hopes to make money, spread betting inevitably means accepting that some bets will fail. Ensuring that you do not place too much of your capital on any one trade and learning to take a failure in your stride will ensure you learn from bad days and hone your skills as an investor.