How to use Your Spread Betting Losses to Make you a Better Trader

Oct 14, 2010, 06:39 ET from City Index

LONDON, October 14, 2010 /PRNewswire-FirstCall/ -- Financial spread betting (http://www.cityindex.co.uk/spread-betting/) carries a high level of risk. For this reason, regardless of your ability to place stop loss orders and interpret the markets, spread betting with any kind of frequency means making a loss from time to time. In the long term, however, the loss itself is less important than the way you hone your spread betting ability in reaction to it.

Before a spread betting loss

It can be difficult for a financial spread bettor of any level to admit that they have made a mistake. When a spread betting position starts to move against you, it is easy to convince yourself that the situation is temporary and will soon turn around to put you in spread betting profit. After all, you entered that spread bet ( http://www.cityindex.co.uk/spread-betting/how-to-spread-bet.aspx) for a reason. And the more the market goes against your spread betting position, the greater chance it has of coming back eventually, surely? Besides, your spread bet has already reached an unrealised loss, what difference would a little more make?

This pattern of thinking can turn relatively small spread betting losses into much larger spread betting losses. It is obviously not impossible to profit from a position of unrealised loss, as the market may well turn around in time. This, however, will quite possibly happen only after the market has reached the point where your spread betting account can no longer afford to keep the trade open.

Instead, you should have a considered, rational system in place before you start spread betting and stick to it. Make sure your spread bet entry, objective and exit are all covered. If you plan to cut your losses at a certain point, make sure you cut them there. If you decide to place your stop losses at certain levels, do not move them any further away from the market price. Ultimately, do not let emotion dictate the way you run your spread betting. This approach will not stop you from making spread bet losses, but it will help to minimise them. For more on risk management on spread betting, go to http://www.cityindex.co.uk/spread-betting/how-to-manage-risk.aspx.

After a spread betting loss

Quite often, a loss can actually be more valuable to your financial spread betting education than a profit. Do not simply put it down to bad luck and move on; think about what happened. Did you move your stop loss to accommodate a potential turnaround? Did you research the spread bet fully? Did you try to let a profit run for too long? Were the signs there that you should have cut your losses earlier? By working out how not make the same spread betting mistake twice, you can tailor your own individual spread betting system to make it more effective.

Losses are part of spread betting, and making money is as much about minimising them as it is maximising your profits. So learn to accept your losses and make them part of your spread betting education ( http://www.cityindex.co.uk/spread-betting/education-and-resources.aspx) if you can, but never ignore them.

Find more ways to get the most from your financial spread betting at http://www.cityindex.co.uk/learn-to-trade/.

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