Chapter 15
Spread Bettor Mistakes
New spread bettors are prone to making some very common spread betting mistakes. Of course, every trader makes mistakes from time to time, but new traders naturally tend to make more.
This is especially problematic because of the fact that new spread bettors likely have much less ability:
- To withstand significant financial losses, and
- To easily recover from a series of losing bets
Therefore, if, as a new spread bettor, you can manage to avoid the most common newcomer mistakes, that will greatly enhance your chances of being a profitable and successful spread bettor over the long term.
In fact, just being aware that you will be more prone to making mistakes at the beginning of your career as a spread bettor gives you a significant advantage over other novice spread bettors.
Here are five of the most common spread betting mistakes made by new spread bettors. It’s worth noting that these mistakes are common among novice financial traders of any type.
Mistake 1: Failure to create a solid trading plan
This is an easy one.
Don’t make the common mistake of just jumping into the financial markets, making random bets just because you think, well, they might work out. Before ever risking your money, it’s well worth the time and effort to learn about trading and create a solid trading plan – a strategy with which you will approach financial spread betting.
That includes such things as deciding on what method – technical or fundamental – you will use to analyse market opportunities and enter a trade, deciding on your initial betting stake size, and clear direction on at what price points you will enter and exit each trade. That’s the approach that experienced, successful traders use.
- Learn more, take our free course: Technical Analysis Explained
The approach that new spread bettors unfortunately often take is either failing to have a trading plan or failing to stick to their trading plan – making unwise moves such as, if the market moves a couple of points against them, suddenly abandoning their strategy and reversing their position in the market. That kind of move usually results in two losing bets.
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Mistake 2: Trading too frequently
Another common mistake of new spread bettors stems from impatience. Traders who are new to financial spread betting are prone to making the mistake of betting much too frequently. They are impatient to start making money, and rather than wait for a good, solid opportunity to make a bet in line with their trading strategy, they decide to just “take a flyer” on something.
This is almost a sure-fire way to lose money.
They have the self-discipline to refrain from trading when they don’t see any truly good betting opportunities.
Even if they see no promising bet opportunities within the space of several hours, or even for an entire trading day, they are content to stand aside from the markets and simply do nothing. By taking that path, they preserve their capital for the next time that a golden opportunity arises.
In contrast, new spread bettors get uncomfortable sitting and watching a trading monitor where nothing is really happening in the market.
They have difficulty in letting any significant length of time pass without placing a bet, much less going an entire trading day without doing so. Such impatience nearly always leads to bad betting decisions, and such bad decisions rarely result in winning bets.
Mistake 3: Failing to cut your losses
More than one savvy trader has made the observation that if you can simply manage to avoid losing your capital, eventually a solid gold winner that returns you a huge profit will come along eventually.
Unfortunately, by the time such an opportunity to make a huge winning spread bet materialises, many spread bettors new to the game have lost most, or all, of their trading capital, and therefore aren’t in a position to take advantage of the really great opportunity.
Cutting your losses short and thereby preserving your betting capital and ability to place more bets in the future is crucial to successful spread betting.
The easiest way to preserve your trading capital is with the use of stop-loss orders that strictly limit the amount of money that you are risking on each bet. Wisely limiting your losses keeps you in a position to continue making potentially winning bets.
It’s important to realise and accept the fact that you are likely to not only have occasional losing trades, but occasional strings of several losing trades in a row.
The remedy to that problem is to carefully manage how much you bet and risk on each individual spread bet so that you can withstand a string of small losing trades and still have plenty of money left to bet with.
- Learn more, take our premium course: Trading for Beginners
Mistake 4: Adding to a losing bet
This is one of the most common trading mistakes of financial traders everywhere, but it is particularly common among new traders. An example of how this scenario plays out is as follows:
- You place a “buy” bet on a stock trading with a spread of £50-£52, placing a stop-loss order at £46.
- The market price falls, approaching the £46 level, but instead of simply accepting a small loss, you either pull your stop-loss order altogether, or move it further down, say, to £38.
- The price of the stock continues to decline, down to £40; if you had left your original stop in place, you would have already been out of the market with a small, manageable loss; instead, you are still in the market, and your loss is now twice as big as it would have been if you hadn’t moved your stop-loss order.
- Rather than accepting the fact that you were simply wrong about the stock price going up, now that it has fallen to a lower price, you are “sure” that it will turn to the upside now from this lower price. So you place a second buy bet with the spread at £40-£42, and put stop-loss orders for both of your bets down at £34.
- The market price of the stock drops to £34 and you are stopped out of both bets. But now, instead of the small loss of £6 (assuming your stake size was a minimal £1 per point) you would have incurred by accepting being stopped out of your initial bet at £46, you now have a total loss of £26 – £18 on your first bet, and another £8 on your second bet. That’s more than four times the amount of money that you were originally risking on your initial spread bet!
Don’t make losing spread bets worse by adding to them and making them bigger.
You will fare much better by simply accepting the fact that you were wrong in your analysis on this one bet and that it cost you a small – but completely manageable – amount of money. Move on to the next good betting opportunity, congratulating yourself on doing a good job of managing your betting money.
Mistake 5: Chasing a missed opportunity
A mistake common to new spread bettors is that of chasing betting opportunities that have already come and gone. This type of mistake usually unfolds when you are thinking about placing a bet.
A little while later, you see that the index has indeed risen – and immediately start mentally berating yourself for not having placed a bet on it. While you’re doing that, you watch the index continuing to rise.
Now firmly convinced that you are missing out on the bet of the century – that the index is going straight to the moon – you place a buy bet on the index at a level that is much higher than the level at which you originally thought about betting on it. Sure enough, the market seems to stall out almost as soon as you place your bet, and then begins to decline.
Instead of a winning bet, you end up with a losing bet.
This is yet another common mistake that typically stems from inexperience and impatience. More experienced traders realise the simple fact of trading that they aren’t going to catch every market opportunity that rolls along.
If one passes them by – sure, they regret missing out – but rather than foolishly chasing a market that has already made its move, they are content with the fact that there will always be more excellent betting opportunities in the future.
In summary
Being aware of the kind of mistakes that are most commonly made by new spread bettors can help you avoid them – and that will help you avoid losing money unnecessarily.
It’s wise to be cautious when you are first starting out in spread betting.
Your betting skill is most likely to improve with time. The best path you can take is trying to make sure that you at least survive your “beginning spread bettor” phase with your capital intact – and perhaps even some profits. Stay aware of common betting pitfalls, and thereby escape them.
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