Spread Betting may come with a number of benefits such as, profits with no taxes, rapid implementation, larger pool of market to deal with, and round the clock dealing, but it has some major risks associated with it as well. If you aren’t careful enough, you may end up losing more than you have invested. This article will shed light on some major risks that an individual has to face when opting for Spread Betting and the don’ts of spread betting. This is not to stop you from choosing the option, but to take suitable risk management measures and adopt proper strategies before it is too late.
Losing More than you have Invested
The first and the foremost risk of spread betting is the loss of money. As spread betting works as a leverage, the person has to pay a slight percentage of the total value of the bet in order to make the bet. This percentage is called as position margin. To make the bet of £1,000, you have to pay the position margin of £50 (5%). However, paying that small percentage of money doesn’t mean you are at low risk. Your profit and loss will increase, depending on the bet value, not the position margin.
Don’ts of Spread Betting
Taking the previous example of £1,000 bet and £50 investment to place that bet, if the product’s price moves in the opposite direction of what you chose, by 10%, you will face the loss of £100, which is twice the deposit amount. Therefore, to avoid such a situation, you should:
- Not risk more than you can lose. This way, you will reduce the risk of spread betting.
- Opt for small sized investments initially. Once you become familiar with the market, you can go for higher stakes gradually.
- Choose the market that suits you the best and the one which has more present and future potential.
- Advance your systemised trading approach in order to get steady spread betting profits.
- Not make irrational decisions based on luck. You need to plan things out properly keeping the past results, and pros and cons in mind.
- Avoid the all or nothing strategy. Do not invest all your money on a single market as a shortcut to gain profits.
- Know when it is the right time to leave the trade and begin it again.
Tools to Reduce Risks
To limit losses that are caused by spread betting, there are some risk management tools available. These tools are:
- Trailing Stops
- Standard Stop Loss Orders
- Guaranteed Stop Loss Orders
You cannot avoid the risks but you can try to reduce their impact by making use of proper strategies and tools. You shouldn’t stop taking part in the trading activity just because of the risks. You can also consult companies like ETX Capital who will guide you on risk management and profit maximisation. Once the risks are under control, spread betting becomes the best profit making option and that too, with no taxes.