With UK inflation at a 40-year high, many people are looking to investing in order to protect their wealth from erosion. Spread betting is one of the lesser-known options available and offers investors many potential benefits.
It’s a strategic way of making money in the financial markets. And as with all forms of trading, knowing and implementing the fundamental principles will ensure your success.
So, what are they? We’ve written this guide to tell you. But first, back to the basics.
What is spread betting?
Many people think that the only way to make money in financial markets is through buying or selling assets – that is, through ownership. However, this isn’t the case. There are methods, known as derivative strategies, that allow you to profit without ever owning an underlying asset.
Spread betting is a derivative strategy – it refers to bets placed on the price of an asset. Here’s a rough idea of how it works.
A spread betting company quotes two prices for an asset, a bid price and an ask price – the prices at which you can buy and sell respectively. The difference between these two prices is referred to as the “spread”.
Investors bet on how the price of the asset will change, usually measured using points. If you place your bet well, you’ll receive a profit.
So, what are some principles that will help you spread bet successfully?
Have a plan
As with any form of trading, beginning with the end in mind is one of the most important things you can do to stack the odds in your favour. Whether you’re a first-time investor or a multi-disciplinary veteran, you’re going to need to create a detailed trading plan. Outline your overall strategy, your goals, and what methods you’ll use to achieve them.
Stay up to date on current affairs
Being clued in on new developments will help you to prepare for sudden market shifts. When you better understand the factors driving change, you’re better able to identify opportunities and mitigate risk. Competing in the markets is largely about competing in knowledge, so make sure that you’re as well-read as you can be.
Overtrading is a common mistake that many people fall into. It’s when you invest too much of your capital at any one time. Without enough capital left in reserve, you can find yourself unable to keep your head above water when things don’t go according to plan. Avoid this mistake by only ever using a predetermined portion of your capital and being disciplined, no matter how tempting an opportunity might be.
Review your results
The best traders are always looking to find ways to improve. One of the ways that you can do this is by looking back over your trading history to see what you can learn. For this purpose, many investors keep a trading journal to log their results. Consider how you could benefit from using one too.
What principles have helped you when trading? Share your experience with us in the comments section.