What To Do In A Crisis

There is a virtually endless pool of spread betting strategies, tips and techniques to become acquainted with if you want to be a successful trader, and being comfortable enough with the theory and practicalities of these trading methods is essential if you are to trade in a dynamic and responsive fashion. But while you might have access to handfuls of trading theories and styles in the good times, that can all fly out the window when you're facing a trading crisis. The dangerous part of spread betting lies in the leverage, and when things start to go wrong you can quickly find yourself out of pocket. Whether it's a single market that's heading south or there's something unexpected that comes into play, your response to the crisis situation should be calm, measured and decisive to protect your trading capital.

Don't Panic

First of all, when your trading world starts to collapse, you need to avoid panic and fear. Irrationality is bred from rash, emotional decision-making, and that's the last thing you need when you're in a potentially very costly, turbulent market environment. The faster you can act, and the better the quality of decisions you can make, the more likely you are to see minimal damage to you trading account.

Traders tend to descend into a blind panic when the going gets tough, particularly when they start seeing red. While it's only a natural reaction to prompt you to protect and preserve your capital, it is seldom conducive to good trading and can lead to a lack of nerve and an overly cautious approach. It's not necessary or helpful - a post mortem can be conducted after the event, hopefully when you still have capital left to play with.

Distance yourself from the emotions that you will certainly experience, and focus on the end goal - that is, damage limitation by swift, decisive action. The more quickly you're on the case of taking objective, sensible trading decisions, the less money you will lose, and the more capital you'll have for trading once the markets settle down.

Close Out and Minimise Exposure

When you're in the right frame of mind, you need to start quickly minimising your losses. Any position that is losing money needs to be closed, starting with the fastest losing position first. Note, this isn't necessarily the position with the largest loss on it - a position that is down 10-points and looks like it could go to 11 in the next 20 minutes is worth holding until you get rid of the position that's dropping points like flies.

Similarly, full consideration needs to be given to the size of stake resting on each transaction, in terms of producing an order in which you want to close out. Remember that time is money, and the longer it takes you to settle your losing positions, the more it's going to cost you.

Even moderately profitable positions should come under consideration in times of crisis. If the markets have become increasingly volatile, or there is some stimulus that could impact on the pricing of other positions, it might be worthwhile closing the majority of your positions to limit your total market exposure. If things start to go wrong, you're sometimes better to limit your losses and draw a line under the whole affair. This often proves the most productive solution, and the best way to avoid your good positions turning further against you.

Respond To The Markets

Finally, when you're comfortable that you have reduced your risk profile and fully pulled back your exposure to the markets, you can think about your next move. There's no need to go overboard and invest more heavily - by investing at the same level as before in newly researched spread markets you should be able to better respond to what's happening, and ideally pick up a few more points in the new market dynamic to offset any losses. Such is the beauty of spread betting - it is possible to profit in strong and weak markets, so there is always an opportunity to profit, provided you're on the right side of the trade.

The best approach in a trading crisis requires a cool, calm head and decisive but intelligent decision making. After all, you could be fighting for your trading life, and while you might need to absorb some pain just now, it's far better to close down losing positions now than in an hour's time when they could have fallen by another 20%. While it's seldom easy to cut positions, even in loss making scenarios, the more swiftly and decisively you do so, the more likely you'll be to realise a full recovery on your trading pot in the long-term.