So, you want to know how to start spread betting?
As with most financial enterprises, it’s important to get off on the right foot. What’s that old adage? – “Well begun is half done.”
Before you actually start placing spread bets, there are a number of things that you can do to make yourself better prepared to be successful as a spread bettor right from the beginning – and hopefully generating profits rather than losing your money.
- Learn more, take our premium course: Trading for Beginners
1. Assess your financial situation
Spread betting is a financial enterprise.
Therefore, it only makes sense that, before entering into it, you should take the time to assess your individual circumstances and current financial situation in regard to how you can fit spread betting into your life, and do some real thinking about what you want to get out of spread betting.
Spread betting, just like any other type of trading in the financial markets, involves risk. Spread betting offers excellent opportunities to make money, but there is also the risk of losing money.
It’s recommended that you never spread bet with money that you can’t afford to lose. Therefore, one of the first things you need to determine before you start spread betting is: How much money do I have that I can afford to lose?
A more important question to ask yourself may be: How much money am I comfortable risking on spread betting?
Think about this in terms of both how much money you have right at the moment that you’re willing to risk and also in terms of how much money you expect to have that you’re willing to spread bet with each week, month, or year.
2. Approach spread betting like a business
Regardless of whether you plan to just place a few, small spread bets each month or you aim to make spread betting your career, you should approach spread betting as you would starting any business. This goes right along with assessing your financial situation.
That’s okay, and it shouldn’t discourage you from pursuing a career as a spread bettor.
It just means that you probably want to do a bit of thinking about things such as:
- How much money can I realistically hope, with the amount of starting capital I have for initial deposited funds, to make from spread betting each month?
- How much trading capital will I need to be able to bet at a level that can generate a full-time income?
- How long will it probably take me until I have that much money available for trading?
By asking yourself those kinds of questions, you can begin to craft a business plan designed to take you from your current situation to the point where you can work full-time on operating your spread betting business.
Calculating how much money you want to be able to make from spread betting each week or month will help you figure out how much money you need to start spread betting.
3. Find a spread betting partner
Before you can start spread betting, you need to find a spread betting company to place your bets with.
Spread betting companies differ in a number of important ways, such as:
- Which financial markets and assets they give you access to spread bet on.
- Margin requirements – the amount of money you have to put up to initiate and hold a spread bet.
- Trading costs; this includes the average kind of spread they offer, as well as other fees they charge, such as overnight holding costs.
- The trading platform they provide for placing your bets; you want to make sure that your spread betting provider’s trading platform is reliable (that it won’t “lock up” or crash right in the middle of your trading), and that it’s one that you’re comfortable using.
Before opening an account with a spread betting provider, if you’re from the EU at least, don’t forget basic issues such as checking to make sure that the company is authorised and regulated by the FCA (the Financial Conduct Authority) to offer spread betting services.
Also, check out what other kinds of services they offer besides just the ability to place a bet. For example, are they a good source of market news? Do they offer market analysis and commentary?
- Learn more, take our free course: Understanding Brokers
4. Learn all you can about spread betting
Before you start spread betting, take advantage of as much free education as you can find to help you learn the skills you need to trade. Then, if you want to make the commitment to develop further, consider taking a premium course, like our Trading for Beginners.
Make sure you understand the subject thoroughly, including understanding how leverage can work both for you and against you, and the different types of orders that you can use in spread betting.
5. Pick your betting market
Before you start financial spread betting, you need to decide which financial markets you want to spread bet on.
Are you mostly interested in spread betting on the stock market, or are the commodity markets or the forex market more your style?
The price movements of different financial assets are driven by different factors. The factors that drive the prices of stocks are not usually the factors that drive major price changes in commodities or foreign exchange.
You are more likely to have success in spread betting if you focus your betting on just a few financial assets that you can develop expert knowledge of.
6. Get a trading strategy
Before you ever place your first spread bet with real money, you should have a strategy in place that will guide your trading. It can be a strategy drawn from fundamental analysis or from technical analysis, but in either case, it should fulfil the following requirements:
- Have set parameters, or rules, that determine whether and when you should enter the market.
- Provide a method for determining ideal entry points, profit targets, and stop-loss levels.
- Suits your personal risk tolerance level.
It’s a good idea to always double-check before placing a bet to see if, in fact, the bet meets all of your betting strategies criteria. A common mistake of traders is to enter a trade that looks attractive, but that doesn’t really meet all the requirements of their chosen trading strategy.
Then, when the trade results in a loss, traders have the tendency to fault their trading strategy, when the fault was actually in failing to follow their strategy.
7. Become familiar and comfortable with the betting platform
When you’re engaged in spread betting, you don’t want to be slowed down in taking action to either open or close a bet.
Study the betting platform thoroughly to make sure that you can smoothly and easily navigate your way around in it, bring up information that you need, and enter and exit your spread bets.
Many spread betting firms offer multiple types of trading platforms:
- A standalone software program
- A web-based platform
- A mobile trading app
There are typically significant differences between the various platforms. Unless you know for a fact that you will only be using one platform all the time, it’s a good idea to familiarise yourself with all three.
What if, for example, you’re using the software trading platform, but it suddenly freezes up just when it’s urgent that you enter a new order? – In such a situation, you may need to utilise either the company’s web-based platform or enter a trade with your phone through a mobile app.
8. Practice with a demo account
Practising with a demo account (virtually all financial trading firms provide these, free of charge) before you risk betting with real money can be one of the smartest moves you make as a beginning spread bettor.
Practising spread betting in a demo account can do much more for you than just giving you the opportunity to get comfortable with the whole process of spread betting.
It will help you monitor the markets, opening and closing spread bet positions, and managing your bets and making adjustments to orders.
Practising spread betting also gives you the opportunity to test out your betting strategy and perhaps make some adjustments to it.
You’ll also get a feel for what it’s like to actually have a position in the markets, even if it’s just with “play” money. This can help you avoid being overly nervous when you start placing spread bets for real money.
9. Know the risks
Spread betting offers the opportunity to make money even starting out with just a little bit of money.
But with potentially high rewards also comes high risk. You need to have an honest awareness of the risks involved in spread betting, such as the fact that since you’re trading with high amounts of leverage, you can potentially sustain a loss greater than your original investment.
Manage your risk exposure by deciding beforehand how much money you are willing to risk on any one spread bet. Set your leverage level in alignment with both your trading goals and your risk tolerance.
Know how to carefully manage your betting positions so that you don’t become financially over-committed to the point where you don’t have enough trading capital in your account to maintain whatever spread bets you have open at any given time.
- Learn more, take our free course: Mastering Trading Risk
10. Have the attitude of a professional
Professional financial traders don’t jump up and down for joy every time they have a winning trade.
Nor do they become a bundle of nerves, start crying, or blaming everyone else whenever they experience a losing trade. Approaching the markets with a professional, objective, rational attitude – rather than being ruled by your emotions – is a critical part of being a profitable financial trader and learning to spread bet successfully.
You may want to take a look at books such as Jack Schwager’s “Market Wizards” series to get a clearer idea of the mindset that super-successful, professional traders have.
There are a lot of things that go into becoming a successful, consistently profitable spread bettor – things such as knowing your market, understanding how leveraged products work, using a solid trading plan, and managing risk.
Fortunately, you can get started doing the things you need to do to make money spread betting before you actually start placing spread bets and risking any real money.
The more work you put in before you enter the world of spread betting, the better prepared you’ll need to do when you do start spread betting for real.