How to get started with spread-betting
- Inform yourself about spread-betting, including the risks associated with it.
- Formulate a basic plan for your project. You will probably need to adjust the plan as you gain more experience, but it is still good to have a basic framwork for things such as risk management, which underlyings to focus on, how much money to risk, etc.
- Research the available trading platforms that offer spread-betting and chose one that is ideal for you and your specific strategy. Some platforms are horrible for everyone and should be avoided, but there are also plenty of examples of platforms that may be great for Trader A and her strategy but highly incompitable with Trader B and his project plan.
- Always test out the platform using play money before you start risking any real deposited money. This will give you a chance to become familiar with the platform and avoid costly mistakes down the road. Also, you can try out your trading strategy and see how it works. How quickly did you run out of 5000 USD in play money.
- Place your first trade using a small amount of your first deposit. See below for more details.
Placing your first spread-betting wager
Important: Exactly how to place a trade, what the different terms mean and what the T&C’s are vary from one platform to the next, so it is always important to find out what’s applicable for the specific platform that you want to use. The points below are just an example of how some – but not all – platforms work.
- Select the underlying. Example: I want to bet on the movements of the stock index S&P 500.
- Select price direction. Do you want to “buy” or “sell”? (You are not actually buying or selling the underlying.)
- Select position size. This is your stake per point. So, selecting 100 USD doesn’t mean that your maximum loss is limited to 100 USD. Instead, it means that you can lose 100 USD per point. For some bets, this means that you can lose enormous amounts of money, so be careful and utilize available risk-management tools in the platform, such as automatic stops.
- Select your price levels, i.e. entry level, profit target and stop-loss.
Know the lingo
Devote some time and energy to understanding the jargon of the trading platform. Below, you’ll find just three examples of concepts that are good to know. Always check their exact meaning on the specific platform you’re on, since this can differ somewhat between platforms.
If you bet $100 on red at a roulette table, you can’t lose more than $100 on that bet. With spread betting, it is different, because the bet size will determine how much you lose for every point of movement if you lose the trade.
Also known as stake size.
Controlled risk bet
In spread betting, a controlled risk bet is a bet where you limit your maximum loss by using a guaranteed stop. On most platforms, you pay a fee for utilizing this service.
This is when the bet will close and you will known if you lost money or gained money.
The expiration can for instance be at the end of the current trading day for the underlying security.