How Risky Are Spread Bets?

Posted on June 25, 2012


Spread betting is like any financial speculation; it carries an element of risk. However, with careful money management and a good trading strategy this risk can be minimized and occasionally removed altogether. Similar to almost all situations in life, when the rewards outweigh the risk then there is a possibility that the risk may be worthwhile. This is true for spread betting too, and having a strategy with a good risk to reward ratio will certainly help you to become a successful and profitable trader in the long run. Spread betting, like anything, is only as risky as you let it become. Trading with good money management will allows even the riskiest bets to be controlled and eventually profitable.

Don’t Assume It’s Like Betting on the Horses

Spread betting should not be associated with pure forms of betting which carry a significantly larger amount of risk. Whilst traders speculate on probabilities, some of which are very high, gamblers rely much more on luck. Having said this, trading without a solid strategy or money management will be closer to gambling than trading and therefore has a much higher risk of a trader losing all their money. Trading strategies for spread betters are essential and the ones which lowers the risk of losses the most are those which tell a trader objectively when to enter and exit a position. Whilst a bad exit plan can lead to losses, no exit plan at all can lead to far greater losses and eventually the depletion of an account.

Focus on Your Losses, Not Your Wins

Many successful spread betters say that focusing on your losses rather than your profits will make everyone a better trader. This is a great piece of advice for all new spread betters who want to learn how to make a lot of money speculating on financial markets. Two simple rules of never risking more than 2% of your entire account on any single trade and to always use a stop-loss will improve the health of any spread betting account enormously. Stop losses are particularly important as they are one of the ways that traders can spread bet on currencies, stocks and indices and actually reduce their risk to zero. This situation can happen frequently to traders who actively move their stop losses as their trade moves in to profit. One of the best feelings a spread better is to know that your stop-loss is at break even and you literally cannot lose anything.

Tristan is interested in spread betting, and with you have learnt that spread betting poses a risk, but it can be managed effectively.

Posted in: Finance