Spread Betting Mistakes

Financial Spread Betting is a powerful way to trade a huge range of financial markets. However, it’s high risk and without avoiding these 10 common mistakes it can be costly. From Hargreaves Lansdown Markets.

1. Fools rush in

Here are some trading tips and mistakes to avoid when spread trading. Achieving success in spread trading often requires avoiding numerous pitfalls more than seeking out and executing winning trades. Know when to cut your losses – The first thing to think about is your exit point. At what point do you get out with a manageable loss? Yes, the majority of spread bettors will make mistakes and lose money but a minority are profitable, this is evident from a review in 2016 when the FCA found 82% of retail traders lost money, this means the 18% balance must either breakeven or be profitable – about 1 in 5. Spread betting and day trading using spread bets, is a high-risk high-reward, and tax-efficient way of speculating on the markets. From trading platform, to how to trade and trading strategy, this page will break down everything you need to get started intraday spread betting and online trading. Common Spread Betting Mistakes Posted May 24th, 2020 by TSFX & filed under Spread Betting Articles. If you are new to financial spread betting or even if you are a seasoned trader, you will make the occasional mistake however hard you try not to.

Too many people don’t understand the risks or understand how quickly markets can move. Before you start make sure you understand how spread betting works, how much money you are risking and be clear about what you want to achieve.

2. Thinking it’s easy to make profits

There are many commentators, and undoubtedly other investors, who will tell you it’s easy to make money trading.

The reality is that all have made losses whilst learning how to trade. Overconfidence can lead to losses so it’s always advisable to carefully manage your expectations. Don’t assume you can sit back and just let the profits roll in.

3. Risking too much on your first trade

Placing your first trade before understanding the trading platform and how much you are risking can be disastrous.

Take a tour of the platform before trading and understand how to set stop losses. Calculate how much you are risking and then start small and build up. Remember your primary objective is to make money, and so wait until conditions are optimal for achieving your objectives, then place a trade.

4. Overexposure and trading markets you are not used to

Many experienced share traders open an account and start trading commodities and FX without conducting the same research as they would normally. When the market moves against them they ‘double-up’ and risk too much of their capital.

Do your research and stick to the markets you know. There is merit in diversifying, but only in markets you understand. Understand how a particular market works – what does a point movement mean in terms of your profit/loss?

5. Cutting profits and running losses

When you place a trade you can set a stop loss which is an order to close your position at a level specified by you if the price moves against you. A common mistake is to keep on moving Stops further away so as to avoid getting stopped out. If you persist in moving Stops further away before they are reached, you are defeating the purpose of using them in the first place.

It’s tempting to take a profit too soon. Run your profits with the strategy of making your winning trades yield substantially greater amounts than the losing trades.

TIP: Set yourself target entry and exit levels. Trailing stop losses can protect your profits on a winning trade. Don’t liquidate a profitable position to fund a losing one. Use stop losses on all trades.

6. Deviating from the plan

Creating a trading plan is important, but can quickly become fruitless if you deviate from the course you have plotted for yourself.

Define entry and exit points in advance. Setting yourself fixed target levels before you enter into a trade will help you to overcome the twin influences of fear and greed. You will need to define two exit levels: an exit point should things go wrong and an exit point for taking your profit when things go well.

As one of the most important rules to successful trading is to use stop losses, it is worth repeating – a stop loss will enforce your exit levels and will help cut your losses. Guaranteed Stops will protect you against even the sharpest adverse market movements.

TIP: Keep a trading log of previous trades. This will show you the results when you cut your losses and when you didn’t.

7. Over-reacting to wins

Making a significant profit on a trade, or a string of trades can affect your perception of your trading skills and ability to keep the run going. This can often lead to a heavy loss on the next trade. There’s no such thing as a ‘winning streak’.

TIP: Immediately after a successful trade it’s worth pausing and not rushing in to your next trade without researching it.

8. Panicking

Fear and greed can play a significant part of speculative trading.

Professional traders will not run their losses, but instead plan how much they’re willing to lose and set a stop loss. They will also plan their exit point for taking a profit or when to raise their stop loss to protect a profit. Sticking to your planned entry and exit points removes some of the emotion.

TIP: Use smaller trading sizes and use stop losses – if you’re panicking over every point move then you are risking too much capital.

9. Being indecisive

Not being willing to act and letting a position run against you, or leaving it overnight in the hope it will have recovered in the morning, can be expensive. You need to be decisive, especially when markets are volatile.

TIP: Don’t be afraid of making the occasional mistake. If you follow your planned entry and exit points and manage your risk sensibly, you’ll soon learn the techniques needed to improve your chances of profitability.

10. Not monitoring positions closely

Checking how big your profit is growing is a nice pastime, but people often don’t like watching their losses build and prefer the out of sight out of mind strategy.

When things are going badly you may have to act rapidly in order to prevent the situation getting worse. Make sure you have a stop loss set and are available should you need to be contacted to top up your margin.

TIP: Make sure you have enough available cash on your account to cover any running losses. This will avoid your position being closed out if you are not contactable to top up your cash balance.

Spread Betting Mistakes Explained

In this section we look at some common and expensive errors traders make spread betting and at ways to avoid them…

Here is the text from a friend who spread bets and is in love with FWY (a stock). The note distresses me as he has 3 kids and has put most of his savings into FWY at much higher prices than today -:

“Hi, good to hear from you, catch up soon for a fry up, my treat.
Christ, I forgot you were a BB addict, freak show or what.
No I kept my Fwy, thinking about averaging down 🙂

Yes I half thought about selling up a few months ago, isn’t hindsight a lovely thing.
Good news is that I have a bit in cash and looking to start bottom fishing when I can stop.
myself from falling asleep as soon as I sit down in the evening.
Catch up soon.
Pete”

Now the only thing missing in this text is Pete blaming FWY’s fall on a treeshake 😉 If Pete really followed his ‘hunches’, I think it might be appropriate for that fry-up to be on me 😉 Oh dear, indeed. So many of the mistakes we traders/investors love to make:

1. Talking about ‘averaging down’ – the classic mistake of adding to a losing position, rather than dumping it and finding a share in an uptrend instead.
2. ‘Half-thinking’ about selling. To succeed in this game, you need to engage as close to 100% of one’s mental processes as possible!
3. Talking about ‘bottom fishing’. I’m sure there’s an Ancient Chinese Proverb somewhere about what happens to traders who try and pick bottoms, but it’s probably too coarse to reproduce here 😉
4. And Pete is “in love” with FWY. Probably the worst mistake of all, and is probably at least partly responsible for 1-3.

Lessons to all newbies in spread betting

Start small…

New traders to spread betting are strongly advised to bet small sizes to start with, learn the ropes and understand that psychology will play a part in your trading process. Then, once you feel confident in the knowledge and application increase your bet size. It is harder than it looks and way too many people blow out because they start off too big, lose a lot and then get carried out before they had time to learn. Many experienced traders have made the mistake of betting large amounts to begin with (in relation to their account size) and then wishing that they started off their speculative careers in a much more controlled fashion (tip by David Robertson).

It’s only £50 a point

I spend a lot of time warning people to understand that they are staking spreadbetting – they don’t work out their exposure and think “It’s only £50 a point” instead of thinking “that’s £50,000 exposure”. It is so easy to lose big with spreadbetting. And stop losses unless guaranteed don’t help. You could have a stop of 58 on SportingBet but it something new dire happens and it opens at 20p, it won’t make any difference. And guaranteed stops cost!

I cannot stress this sufficiently. It is very important to remember what your exposure is. For instance a £10 per point spreadbet on the FTSE may not seem like a lot when you’re thinking that you are only looking for a couple of points movement, however all it takes is for the FTSE to move 40 – 50 points in the wrong way and you are down £400 – £500. Basically don’t get greedy, always work out how much you are exposed to and set stop loss orders and stick to them, there’s always ‘another trade, another day’ – it is just too easy to get emotionally attached thinking ‘this is going to be the big one!’ – It doesn’t happen often. Small profits here and there is the way forward.

Aye. Many spreadbetters do forget to do the basic calculation -:

E= S x P

Exposure(£) = Stake(£) x Price(p)

Don’t forget, if you open a trade by ‘selling’, your stop order should be to ‘buy’ not ‘sell’ again…

Classic cock-up yesterday. Went short of FTSE at 6194. Set a tight stop at 6200. Oh Well, 6 points lost never mind.
Came home to see my account in very bad shape 40 odd points down.
Don’t forget, if you open a trade by ‘selling’, your stop order should be to ‘buy’ not ‘sell’ again…. 🙁
On a similar note, went long on MKS yesterday but didn’t set a stop. Was going to pull out when it fell 8 points below entry which would normally be more than enough to frighten me off. Luckily, (for once in my bleeding life) I held on.
Feeling a lot better this morning 😉

Leverage kills…

A very important mail about the misuse and dangers of leverage from Laurent. I thank him for writing it because it is a chilling warning of what can happen if you over extend yourself on credit from the spreadbetting firms. The mail really needs no other comment from me except you should read it!

Thought I would write in to tell about my 2007 thunder loss. I thought I would tell it cause you could post it on the website and it could help other people. Also, because I’ve told my girlfriend most of what happened but not all.

At the turn of this year my portfolio was up 30%. I was buying real shares with my own money and I was doing well. Although I had been interested in shares for 3 years I had only really been trading for 1 full year. I learnt about spreadbetting in Jan this year and decided that if I could make 30% on my current portfolio then when I leveraged it using spreadbetting I could …yeah you know.be a millionare by August 2007! Or something like that.

So I started trading large amounts. At the time I didn’t really think much of it and I was just trading. Looking back at it, it all made sense. I was trading amounts that were 5 times what real money I owned. Before, when I was trading normal shares I could take a 10% loss and hold it because I knew it would come back up. Now, with leveraged shares I would step into a 5% loss and freak out cause of the amount. Basically as of June I was in the negative because even a small loss on these large amounts of money (large amounts of money for me) I would get scared and sell. I was losing almost every time I went for a big highly leveraged trade. Because I thought I was going to be rich so quickly my rules were very loose also. My stop rules and targets had become so loose it just wasn’t funny. I would have a profit of 12% but decide that it should be 20%. The share would later turn and I would sell at a loss of – 7%. Enough 7% losses on leveraged trades and your bank balance soon goes.

Football Spread Betting Explained

After going over my past trades and losing all of my capital and going into negative (I had a loan) I realized the only time I made money was on the smaller trades I did because going into a 5% loss didn’t scare me, and I could hold onto the trade if I thought it was going back up. So for the last month I have been trading smaller amounts which me and my bank account can handle. I’m now breaking even again and I am amazed at how I have been making money with smaller trades that I can handle. You read it everywhere that leverage can be dangerous and I learnt the hardest way. In the last month I’ve been taking 7% – 15% on my trades and doing much better. I’m only 26 and hope to be a full time trader one day. Until that time I’ll keep trading within my limits and hope to get there one day.

Don’t fall in the trap of having too big a bet and too small a spread…

One of the biggest mistakes I kept making when I started spread betting was by having too big a bet and too small a spread. Anyone playing this game please learn its not just about trying to make money, its also about trying not to lose money. For instance at one time in December I tried a £25 bet with a 20 point stop loss on Urals energy @ £2.79, luckily I couldn’t do this so tried a £12.50 bet with a 40 point spread.

The shares dropped to £2.46 approximately which would have made my original bet lose. As it was because I had dropped the amount and increased the stop loss my bet was still running and recovered shortly after. By april/may it was well in profit and in one week alone increased by over £1.50 to £5.60 area which I sold for a very handsome profit.

Don’t overtrade in frequency or size

This is the most common reason for traders’ lack of success. Remember that for a spread better, not trading is an active trading decision. This should be the default approach when you realise you don’t have the expertise or knowledge to commit funds to a position. To control risk, it is useful to set up a ‘stop-loss’ limit, which will close your trade at a set level if the price moves against you. Otherwise, you could be facing unlimited losses if the market turns.

Spread Betting Mistakes Nfl

Do not try to be Jack of all trades!

The choice of trading instruments can be bewildering to most people and beginners in futures especially… One minute it’s Corn, the next it’s the Wall Street, then Gold and then its March British Airways – it is best to specialise in one or two markets and get to know them inside out. The spread betting providers don’t help much either of course – too much choice just leads to disaster!! Like trying to make TOO MUCH money – TOO QUICKLY usually leads to disaster.. !!

Spread Betting Mistakes Chart

Greg Secker: “When I first started trading, I made all the mistakes, I didn’t trade size, I didn’t plan, my strategies were ineffective and I didn’t goal set. In fact, it’s a wonder I ever made it in trading looking back at the earlier mistakes. If I took a losing trade, in my darker moments I would ask ‘Why am I doing this? Who am I kidding?!’ and without defining my goals, I remember answering that question with ‘I have no idea!?’ – And then I would take a few weeks out to ‘heal’ or at least try and forget.”