LONDON, May 1, 2012 /PRNewswire/ --
Spread betting is an alternative to more conventional forms of financial trading, offering you the ability to make a profit from rising as well as falling markets.
Spread betting is a fairly simple concept to grasp - you go long or 'buy' if you feel that the price of a particular instrument (e.g. the FTSE 100) is set to rise and you go short or 'sell' if you believe that the price of the instrument will fall. If you were right and prices move in the direction you had predicted, you make a profit. Else you make a loss.
Spread betting offers numerous advantages over conventional trading, including leverage and tax-free* profits.
With the UK now in a double-dip recession, spread betting could be the ideal opportunity for traders to take a position on falling market prices.
Here are our top 3 tips that will help you to improve your spread betting strategy, so you can maximise your profits from moving markets.
1 - Create a strategy
It is important to safeguard against getting swayed by rapid real-time fluctuations in the market. Adhering to a disciplined spread betting strategy can go a long way towards helping to ensure that you keep emotions and spontaneity in check when placing a trade. Experienced traders opine that spread betting strategies needn't be complex. Even a simple spreadsheet outlining your profit goals and maximum loss allowance should be sufficient to help you stay focussed and not get carried away when placing a trade. This will help you to approach financial spread betting with a calm, clear head, so you don't make impulsive decisions based on 'feelings', 'gut instinct' or 'intuition' that you may later regret.
2 -Manage your risks
Established firms such as Finspreads offer a range of risk management orders to help ensure that you set a limit on your maximum loss allowance. By using the right tools such as stop losses and guaranteed stop losses, you can ensure that you never lose more than what you can afford, without limiting your profit potential.
Stop loss orders: Stop losses are used to manage downside risk and are orders to close an open position when the market reaches a predetermined level. Potential loss on a position is limited by requesting that the trade is closed once the price has fallen to an agreed level. Once a stop loss order is triggered your trade will be closed at the next available price.
Guaranteed stop loss: These orders offer an additional level of certainty when managing your downside risk. With a guaranteed stop loss you pay a small additional premium on the trade to guarantee that the level at which your order will be executed is the exact level that you set, regardless of any gapping in the market. Finspreads offers guaranteed stop losses that are especially useful in volatile markets when prices can move suddenly and significantly, and may not hit the exact level that you set your stop loss.
3 - Follow the News
Another way to learn about spread betting is to study the markets and understand factors which can affect the price of the market you wish to trade. Experts recommend that new or aspiring traders would benefit from investing in markets they understand most, so they can take better informed decisions. For example, rising or falling oil prices could influence the price movement of a particular airline stock or the entire aviation sector as a whole, as higher fuel prices would result in increased expenses and lower profits for the airline and falling fuel prices would improve profit potential for airlines, thus pushing up their stock prices. Similarly, fluctuations in gold or copper would have an impact on mining stocks etc.
Spread betting is a leveraged product, which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
*Spread betting is currently exempt from UK stamp duty and Capital Gains Tax (CGT). However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.
Finspreads is a leading online financial spread betting firm, offering access to thousands of instruments on the world's financial markets.
The company pioneered fully interactive online spread betting in 1999 and continues to invest in technology to ensure that its service remains amongst the market leaders.