The Best Strategies for Successful Spread Betting
Like all investments, spread betting carries with it the potential for both profit and loss. You should be aware that losses may exceed your deposits. Nonetheless there are some strategies more likely to bring success. Here is a compiled list of tips to help you with your spread betting:
Before even opening a spread betting account there are some basic rules:
- Find a reputable spread betting company. There are many spread betting companies to choose from. Among the best is Capital Spreads, which will allow you to open a no-obligation demo account so that you can try their system before committing.
- Never fall in love with your investment. Your investment is there purely to make money. If it starts to lose money, then sell and cut your losses. Don’t sit back and wait in the hope that it will recover as you could be waiting a long time. Use a stop-loss order to ensure that, if the market goes against you, your loss is limited. Discipline is the key.
- Only invest what you can afford to lose. Calculate what this figure is and invest only that amount. Remember that spread betting is done on a margin. This means that if you lose, your loss may exceed your initial investment.
- Do your homework. To give yourself the best chance of success you need to get some background on the markets, commodities and stocks that interest you.
When you are ready to go ahead, you’ll have to decide on what investment strategy to use. Traders have their favourites but these are among the most common. They apply equally to markets, commodities and individual stocks.
Alex just made money at the Hong Kong Exchange by JMR_Photography, on Flickr. This work is licensed under a Creative Commons Attribution 3.0 Unported License.
Trend Trading
Prices often exhibit an upward or downward trend over a given period of time, advancing or declining in a series of spikes. If the peaks and troughs consistently rise then this signifies an upward trend and you should anticipate a price rise and hence enter a “buy” position. The reverse holds if peaks and troughs are getting lower and indicates that you should enter a “sell” position.
Reversal Trading
Trends always come to an end and many traders will adopt a strategy to see if a trend has come to an end. Reversals can be difficult to spot, especially for short time spans, but can give excellent profits. Professionals use indicators like Bollinger Bands and Doji Candlesticks to predict possible trend reversals.
PIX1861 / Pixabay
Range or Channel Trading
Markets, stock and commodity prices fluctuate regularly and often trade within a specific range over a given period of time. The higher level is known as resistance, the level that it has to break through to go higher. The lower is called support, the level below which it should not fall.
If trading in a range, approaching the resistance level is a signal to sell and approaching the support level is a buy signal. Some traders prefer to wait until the price breaks out of the range for a sustained period before entering a position. Going through the resistance level is a buy signal, as the price is expected to rise, and falling through support indicates sell, as the price is expected to fall.
Trading strategy is a matter of personal preference. Find a strategy that works for you and stick to it.
Remember that a good spread betting company will do all it can to help you (although you’ll have to decide on your own trades) and, with some skill and luck, you could be on your way to financial success.
Spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.
Chris James is a freelance finance writer with a particular interest in spread betting and CFD trading.
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