Managing Leverage Risk in Spread Betting
Key to striking the right balance between the positive and negative aspects of leverage is the ability to manage your risk exposure, both in terms of the positions you choose and the amount you stake on each trade. Part of the holy grail of successful spread betting lies in determining when to leverage up, and when to take a modest exposure, and there are a variety of techniques and strategies in spread betting that can be deployed to manage risk in the most efficient and pragmatic ways possible.
While much of the day to day, transactional business of spread betting is fast paced and operational, it pays not to lose sight of the end game. Remember that very few successful traders ever made it big with that homerun trade – you don’t need to hit it out the park every time to be successful. When you adopt a longer term mindset, you can start to accept individual losses when they inevitably rise, safe in the knowledge that your aggregate trading portfolio should increase through shrewd trading. To simplify, you can trade profitably 20% of the time and still make money, so long as your 20% of successful trades earn more than the 80% of failures. Key to this is the notion that losses should be cut and profits allowed to run to their conclusion.
While it feels counterintuitive and somehow more risky to leave a profitable position running, this really is key to helping make up ground on the inevitable losses you will sustain. By adopting a more clinical approach to nipping losing trades in the bud before they gain too much momentum, you can help minimise your losses, to give yourself the best chance of profiting overall. When you do strike it lucky with a successful position, milk it for every last point you can – while it takes nerves of steel to hold out, this is the only credible way of strengthening your account and ensuring you generate an aggregate profit from your trading activities.
Leverage in the round is arguably the single most important topic when it comes to spread betting, aside from understanding the fundamentals of how transactions work, in order to give the best feel for .
While you will no doubt experience both the positive and negative effects of leverage on your trading account as you go, it is nevertheless important to constantly bear in mind the risks inherent in leveraged trading, and the impact these risks can have on your ultimate success or failure as an investor.