11 Things to Consider Before Trying Spread Betting in Forex

When I first decided to try my hand at spread betting the forex markets, the first place I decided to turn for information was to look at some one that knew what they were doing. Who better than the spread betting giants IG Index?

11 Things To Think About

 

So I decided to list the information I gained into the most important points. Here goes.

  1. Understand the ways in which spread betting forex gives you an advantage over trading the underlying asset. Spread betting forex is tax-free; has no brokerage charges; leveraged trading makes your money go further; you can benefit from falling markets; low stakes; access to thousands of instruments from a single account. You can use a Forex EA
  2. Equally, understand the disadvantages of spreadbetting forex: it has the potential for more dramatic losses (on leveraged trading); its losses are not tax-deductible; you have no shareholder rights; and it’s not suited to buy-and-hold investing.
  3. When you are spread betting forex you need to plan your trade, and trade your plan. I talked about this last week – and I’ll no doubt talk about it again, and again. Why? Because it’s so important. Trading without a plan leads to impulse trading, emotional trading, and head-in-the-sand trading! None of these are good things!
  4. Keep a log of your trading when you are spread betting forex – a simple Excel spreadsheet is enough – and map your successes and failures.Train, practise, and limber up. Never embark on any form of trading without first practising. Some people are scathing of demo accounts, as they have different data feeds to live accounts, and don’t always give an accurate representation of results. But demo accounts have a valuable place in testing and training. Of course, they aren’t a substitute for live trading or spread betting forex for real, and for starting small and building your profits slowly which is a fundamental pillar to achieving success in spread betting forex.
  5. Manage your risk is very important when spread betting forex: match your trade size to your risk. If you’re spread betting forex prepared to risk £150 on a trade, and your stop is 15 points from your entry level, your stake size should be £10; if your stop is 30 points away, your stake should be £5.
  6. Always look at the overall equity in your account when spread betting forex – set a percentage of your fund you are prepared to risk on a trade. It should be your primary concern to protect this equity. If you make a lot of money in a short period of time, consider banking it, or taking some of the profits. Again, it comes down to protecting your core equity
  7. Understanding your margin is equally important when spread betting forex. There are a lot of myths banded about relating to leveraged trading and the risks that it entails. Trading on margin involves a higher degree of risk than other forms of trading – provided you understand that risk and manage your trade accordingly, this should not be a problem. Margin gives you more ‘bang for your buck’ – a way of making the most of your trading capital. It also allows you to spread your risk across many different shares and sectors. It is often abused by traders, who use it to overstretch themselves. However, used correctly, it is an effective trading tool when you are spread betting forex.
  8. Make friends with your losses. Losses are a valid part of the trading process – it’s important to understand that and not to equate losses with failure. It’s equally important to balance your win/lose ratio with your profit/loss ratio. It’s very possible to be a successful trader with a low win ratio, providing your profit/loss ratio is high enough.
  9. Eggs and baskets: don’t put all your eggs in one basket, but – equally – don’t try to specialise in too many areas. One of the joys of spread betting forex is that you can access so many instruments from your account: the FTSE, the NASDAQ, the DAX, futures, options, ETFs, currencies, commodities …. It’s impossible to keep track of all these instruments. Find one or two that interest you, and master trading with those before you expand your repertoire.
  10. Watch for your emotional triggers. It is vital with any form of trading to keep your emotions in check. If you get the urge to go “off piste”, it’s a sure sign that you’re about to do something irrational and impulsive. “Irrational” and please believe me when I say “impulsive” should never be part of your trading plan – learn when to pull yourself up when spread betting forex
  11. Shop around. Different spread bet accounts offer access to different trading tools, like trailing stops, or different types of order. Charges, spreads and initial margin requirements also vary from platform to platform. I always recommend having at least two different accounts – that way you’ve got a back-up if one system goes down. There are also some great offers out there from companies keen to get your business.With thanks to Mark Rose of Traders Bulletin for compiling this list.