LONDON, October 8, 2010 /PRNewswire-FirstCall/ -- Financial spread betting is not easy; if it was, everybody would be doing it. You can, however, ensure that logic and consistency underpin every spread bet that you make, by developing your own disciplined spread betting strategy.
The idea of a spread betting strategy is straightforward. By using one, you should know even before you place your spread bet why you are entering the trade, where you want to take profits and more importantly where you are willing to take a loss. Not only does this help to filter out any impulse spread bets that may backfire, but it also means that emotion is removed from your spread betting decisions altogether.
Here are some of the questions that your financial spread betting strategy should answer:
What do I want to spread bet on?
Spread betting providers such as City Index (http://www.cityindex.co.uk) offer a wide range of markets including indices, shares, commodities, currencies and metals. It is vital that you understand the market or markets you wish to trade before you start spread betting, so your strategy should focus your trading on the markets that you know best.
What is the true value of the spread bet?
Remember, as spread betting is a leveraged product ( http://www.cityindex.co.uk/spread-betting/what-is-spread-betting.aspx), you control a much larger position than your deposit would normally allow you to trade in the underlying market. The advantage of this is that your winning trades can return much greater profits. However, your losses can be magnified in exactly the same way. This means that risk management and an awareness of the true value of your spread betting trades should play a crucial role in your trading strategy.
What profit/loss am I prepared to accept from a spread bet?
Even the best spread bettors sometimes get it wrong. Most traders at some point in their trading career make at least one losing trade. The key is to ensure that your spread betting profits outnumber your losses. With this in mind, you should know beforehand what level of profit and loss you would accept from a spread bet, and use these figures as the basis of where to place your stop losses and limit orders for that trade.
Which stop loss shall I use?
Stop losses are used to reduce risk by closing a losing trade once a market passes a trigger value set by you. This means that you are able to automatically close trades and cut your losses if the market moves against you, helping you to limit your downside potential. Learn more about spread betting risk management at http://www.cityindex.co.uk/spread-betting/how-to-manage-risk.aspx.
The difference between the two types of stop loss is that standard stop losses are not infallible, as the order will only close your trade at the best available price once the stop value has been triggered. Guaranteed stop loss orders incur a small premium but guarantee to close your trade at the trigger value you have set, regardless of underlying market volatility and gapping.
Whatever your spread betting strategy, practice risk-free with a spread betting demo account at http://www.cityindex.co.uk/learn-to-trade/demo-account.aspx.
See a list of upcoming free spread betting seminars at http://www.cityindex.co.uk/learn-to-trade/seminars.aspx.
Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
Spread betting and CFD trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.
SOURCE City Index