Making sure you know how to prevent substantial losses is integral before delving into spread betting. Legally similar to gambling, spread betting can be a goldmine of potential profit as well as a death trap of losses.
Perhaps one of the best ways to limit the risk of losses is understanding how spread betting works. There are several online tutorials by several spread-betting company providers that allow traders to have hands on experience on how spread betting can be used to their advantage. Moreover, there are also tons of books and magazines about spread betting which are readily available in paperbacks or E-books that contains valuable tips by successful traders and companies on how to manage and take full advantage of spread betting.
Spread betting is a complex and fast moving activity which can be rather complicated at first especially with the underlying concepts and trading jargon. Therefore people should understand and get to know the basics in spread betting before they begin since service providers don’t always highlight the risks clearly.
Traders who are new to spread betting are usually advised to start with small bets. Spread betting is flexible therefore to better give novice traders hefty gains and manageable losses. Experts also recommend that traders should probe and research a particular market before placing a bet. This can be done by examining a company’s recent rank and performance as well as its prevailing economic conditions and outlook. Although research is not enough to guarantee success, it does however give the trader a well informed decision.
A second thing to consider is keeping emotions in check when placing a bet, otherwise hotheaded and emotional traders are much more prone to inaccurate and poorly calculated decisions. Perhaps the best way to maintain a disciplined approach is to come up with a strategy so that there can be a true motive and goal, instead of just an impulse or hunch.
Spread betting companies provide a wide array of technical tools to minimise the risk of significant losses, one very effective and popular tool being stop losses.
There are two available stop loss mechanisms. A standard stop loss is basically free and closes a trade at an agreed upon price. For instance, if someone purchases the FTSE 100 at 4,400 for £4 in a speculation that the market will rise would most likely place a stop loss limit at 4,360 to guard against any further loss. If the index drops and hits the limit set then losses will only be limited to £50 which protects the trader from extreme losses.