Hugely successful spread bettors include Simon Cawkwell, who has made countless millions with spread bets on stocks. Simon Smith is a bit cagey about exactly how much money he’s made from spread betting on housing prices, but confesses that it’s been at least enough for him to pay off his mortgage.
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.
In this chapter, we’re going to go over some practical steps to get you onto the right side of this divide.
- Learn more, take our premium course: Trading for Beginners
Approach spread betting like a business
If you plan to make a living from spread betting, then you are, in effect, starting your own business as a spread bettor. As such, you should approach it like starting a business. Most businesses take a couple of years to become firmly established and consistently and significantly profitable. Your spread betting business is likely to be no different.
Having sufficient capital to start your spread betting business is actually likely to help you succeed, as it will free you up from feeling pressure to be profitable on every spread bet trade right from the beginning.
Devise a business plan
Next, you need a good business plan. Part of creating a business plan for spread betting is going to involve finding and adopting a profitable spread betting trading strategy.
It may take some time spent experimenting with various trading strategies before you find one that is (A) profitable and (B) that you’re comfortable with using.
Choose the correct spread betting firmYour choice of a spread betting firm is another important part of your spread betting business plan. Different spread betting firms offer different spreads, different trading platforms, different markets, and different margin requirements. It pays to take the time to research the available spread betting companies thoroughly so that you can find the one that best suits your trading needs.
- Learn more, take our free course: Understanding Brokers
Picking your spread betting market
At the beginning of this chapter, we made reference to a number of spread betting success stories. You may have noticed that each one of the successful spread bettors named specialised in trading a certain market – Cawkwell, the stock market, and Smith, the housing prices market.
Most successful investors of any stripe concentrate their trading efforts on trading the financial instruments of a specific market. Therefore, it makes sense to focus your own trading efforts in the same way.
The reason for this is two-fold:
- There are simply too many financial instruments to trade to make it practical for any one trader to keep up with all of them, much less become proficient at trading them all.
- Assets in each financial market trade in different ways. Stocks do not trade in the same manner that commodities do, and commodities do not trade in the same manner as forex or interest rates.
If you already have experience in, for example, trading stocks or forex, then you may want to take whatever skill and expertise you already have in one of those markets and apply it to spread betting.
Alternatively, you may want to blaze a trail as a spread bettor in a market that you haven’t previously traded. Either way, it’s important to find a market that fits your trading style and then learn all that you can about trading that particular market.
Two calculations to make for making a living spread betting
There are a couple of important calculations you need to make in planning out your spread betting business.
However, depending on how much money you have available to fund your spread betting business, you may have to start out betting at that level and then gradually increase the size of your bet stake as your trading account grows.
In that case, you also need to try to estimate how long it will take you to amass sufficient trading capital to be able to bet at the level you need to in order to make a living from your trading.
Accept early losing trades – practice makes perfect
Just like fine-tuning any business, successful financial spread betting takes time, practice, and effort. Don’t expect to be a market wizard right from the start. Instead, be realistic and just accept the fact that it takes time and learning to become a really good spread bettor
First of all, no matter how adept you become at spread betting, you’re going to still have losing trades from time to time. Even the very best spread bettors don’t win every bet. Second, every losing trade can be a learning experience that helps you have more winning trades in the future.
The best attitude is to simply view losing trades as part of the cost of operating your business. There aren’t any businesses out there that operate with a 100% profit margin, so why expect yours to be any different
Take advantage long and short
One of the many advantages that the spread betting industry offers is that you can make money from financial spread trading just as easily selling short as buying long. In fact, Simon Cawkwell amassed the bulk of his spread betting fortune by making short selling spread bets – betting on stock prices to drop rather than to rise.
It may take some practice to get comfortable enough with selling the spread so that you are equally ready to buy and sell the market at any time. You can speed up your learning and trading skill in this area by making a conscious effort to be on the lookout for selling opportunities, and by always making sure to examine the markets from both sides, both buyers and sellers.
Keep in mind that the only reason one trader is able to buy is because another trader is equally willing to sell – and that selling trader is just as convinced that the market price is going down as the buying trader is that the price is going up.
It’s certainly possible to make money from spread betting
And if it’s possible to make money from it, then it’s also possible to engage in financial spread betting for a living. All that’s necessary are the same ingredients that make for any successful business:
- Sufficient capital to fund your business for the first year or two.
- Creating a solid business plan and a strategy for executing the plan.
- Taking the time and effort to make your business optimally profitable.
All profitable businesses are the result of hard work, regardless of whether that work is manual labour or market research. As long as you’re prepared to do the necessary work to make your spread betting business a success, there’s no reason that you can’t be the next spread betting success story.
Learn the skills needed to trade the markets on our Trading for Beginners course.