Why Spread Bettors Lose?
Many thousands of traders each year are attracted to spread betting with tales of easy money. Having heard stories of ordinary people from all walks of life scaling the giddy heights of trading success, they throw themselves (and their wallets) wholeheartedly behind spread betting before ultimately losing it all.
The sad fact is that the vast majority of new traders will drop off having lost a significant proportion of their capital, and there are a number of key reasons why spread bettors lose that rear their heads time and time again. By working on these common reasons spread bettors fail, and taking the necessary steps to ensure you don't become just another statistic, it's important to understand how and why people fail in order to give you a shot at consistent, profitable trading.
Education & Understanding
One of the most crucial conduits to success in anything is education and understanding, and unfortunately the majority of traders don't educate themselves enough about how spread betting works, how the markets work or how they deliver a return. Reading one book or a quick skim of a website isn't enough - you need to really get down to the meat of the issue to understand odds, spread betting, data analysis and so on. Of course, there's much to be said for learning on the job, and as a trader you will almost certainly learn new things every day, but by making sure you lay the preparatory work for a successful trading career, you can help ensure you don't make too many costly mistakes.
Lack of Research
In a similar vein, education in spread betting is an ongoing process, and like any professional operating in any industry, the more effort you put in to understanding your market and the specific factors that drive pricing, the more likely it is that you'll be in a favourable position to call market movements. That means constantly keeping up to date with current affairs, reading the thoughts and opinions of a variety of analysts and studying the various data sets available to you to make more informed decisions.
The majority of spread betting traders don't go into nearly enough depth to understand the markets in which they operate, and as a result simply don't have enough of a picture of the markets in order to make good trading decisions. Given the extent to which its possible to lose in spread betting, this is a crucial point that any successful trader must first embrace, in order to prevent uninformed decision making, which is essentially as no better than guesswork. Especially when you're competing in an industry of experts and highly intelligent traders, knowing your markets is beyond essential.
Lack of Discipline
Another common fault amongst new spread bettors is a lack of discipline. It's easy to become attached to a trading position that seems to you to be logical, even when the markets are clearly responding in the opposite fashion. Don't get caught up on the expectation that the markets will eventually turn around - there are no guarantees in this business, and by the time the market does start to reverse, your entire trading account could be wiped.
In order to be a successful trader, you must first acknowledge that some trades will win and others will lose, and in the process you should take care to position tight stops to preserve your capital. Even if it seems as though markets might recover, it's usually not worth the risk to maintain exposure against the grain of the market, particularly given the extent of leverage at play in spread betting.
Lack of Capital/Overamibition
Overamibition is a killer when it comes to spread betting, and many inexperienced traders will launch in without sufficient capital to justify their trading decisions. Bear in mind that even though you might be able to afford a margin, a slight drop in the market can result in significant losses, so it's far better to wager a small amount per point until you're in a strong capital position to up the ante. Most traders don't have the capital or experience to be trading heavily, so avoid your greed instinct and stay on course with a reasoned, cautious approach. Gamblers take risks - traders try to stack the odds in their favour.
Trading Against The Grain
Markets are not always rational beasts. Even when a position seems to clearly indicate you should behave in a certain way, it's best to avoid trading in the face of market momentum, especially if you're not in a position to tolerate significant losses. All too often traders commit to positions that fight against the current because their logic tells them so, but this is a fallacy and one of the more common reasons spread traders find themselves in trouble. Whatever your trading research shows, market momentum will always be a difficult force to overcome, and it's far safer to ride out a market movement in the direction of everyone else than to take the risk and plough ahead.