The high leveraged feature of spread betting is but a tiny fraction of the sum of the bets that needs to be deposited in any spread betting company. Regrettably, this results to over-trading which is the most fatal error in the practice of spread betting. In fact, it was the first item in Ladbroke’s list of top mistakes in spread betting for beginners and has been cited in another source as the greatest error that leads to huge losses in the markets.
Trading over the limit means that you could actually be thrown aside by an unexpected downturn in the markets. Many traders who are new to spread betting fall prey to this common flaw in the practice.
How does over-trading happen? This occurs when a trader is carried away by the thrill of trading unknowingly and carelessly opening too many positions. If a trader enters a position seriously then the losses will exponentially multiply if the direction of the market is opposite the trader’s position. Basically traders who are too overconfident and are downright greedy with lack of insight are the ones who are at risk of trading randomly.
You can basically prevent yourself from trading over the limit by simply following a simple and defined strategy rather than solely depending on gut instinct or luck. Basically if you can make as much of a return as one per cent per day then you will most likely increase your money by almost 33 % each month. That in turn is considerably more than what can be expected from a bank.
A popular guide who is into spread betting is a book called “Reminiscences of a Stock Operator”. This book describes the exploits of a certain renowned trader in the beginning of the 20th century who amazingly achieved and lost millions as a result of over-trading. This book gives traders a wider perspective in the trading while teaching them to avoid the mistakes made by successful traders in the past.
Always remember that gauging one’s approach in every trade is very critical as the tendency to over-trade is a very distinct and tempting signal many traders are caught unaware of.