So you heard from some friends that you could make a ton of money spread betting, so you read a few articles for newbies and then jumped right in, expecting the profits to start rolling in almost immediately.
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Then the trend went the other way, and your hefty account balance shrank significantly.
The good news? You’re far from alone. Only about five percent of the people who trade can use spread betting to make a living. The other 95 percent don’t have a good plan, or they’re doing it as a hobby rather than a serious business.
You might think that you have all the answers. You’ve done your homework, and you know all about how to use things like moving averages, RSI and MACD. However, these tools are just a few drops in the bucket when it comes to putting together the right approach for spread betting. Here are some misconceptions that you will need to overcome if you plan to enter that elite 5 percent.
1. If you’re not making money, it’s time to try something else
Remember — as long as you have money, you can stay in the game. You’re going to see some downward trends, but the key is to stay with it until the trends go in the direction that you want. A lot of traders see piles of money in their dreams and fixate on those profits.
But until you have a plan that you’ve put together, back-tested, and fine-tuned, you’re not ready. If the plan shows signs of viability, you’ll want to start out with small stakes (and maybe stay there — after all, it is when you swing as hard as you can with a big bet on the table that you can see huge losses).
2. My problem is my strategy
Actually, the problem isn’t the strategy if you see your trading account spiral toward zero. Sometimes trends go the wrong way. A lot of the success in spread betting comes from managing the amount that you stand to win or lose. As successful clients at such companies as CMC Markets know, it’s not about what you do — it’s about managing the risk you have. Let’s say you lose $100 ten different times, but then you hit on one $2500 deal.
You’re way ahead, even though your win-loss record is 1-10. That wouldn’t work for a football coach, but for your account, you’re up $1500.
3. Those guys who keep yapping about trading fundamentals are too old-school
You might feel like you’re at the roulette wheel or the slot machine when you’re spread betting, but you’re really not. There is not some benevolent force of fate waiting to turn tings in your favor. You have to pay attention to market trends, and if you don’t know how to do that yet, it’s good to seek out a mentor in the field. People enjoy sharing their success tips because they like talking about when they made money, and you can turn that to your advantage.
People new to the game go against the trend at the first whisper than things are about to change. The problem is that the first whisper never becomes a second whisper, let alone a murmur, and the end result is often a loss. There are some other traders who are like those people who refuse to evacuate their family home in the path of a giant hurricane. The end result is often a catastrophic loss. That’s what ignoring your stop losses can do for you — leave your account as empty as a yard five minutes after a tornado has swept through.
A lot of new traders don’t follow the 2% rule for managing their money. They put more than 2% of their account balance at hazard in the bet, and then they open up a bunch of trades hoping that the trend will bring them a ton of money. You can double down if you’re playing blackjack at the MGM Grand in Las Vegas, but this is a great way to lose a lot of money in a hurry. Going from one bet to three triples your exposure.
So how do you make spread betting work for you? Be smart with your exposure levels, listen to the advice of those happy few who can make a living this way, and keep to your course. Losing patience means losing money — and that’s not why you signed up for this. Let patience build your profits.