Managing the risks of Spread Betting
When becoming a new trader it is important to understand the risks associated with spread betting, ensuring you enter and exit bets in an informative manner
by Abi Moses on 3rd November, 2016
When becoming a new trader it is important to understand the risks associated with spread betting, ensuring you enter and exit bets in an informative manner. Here at Spread Betting we go to great lengths to educate new and exiting traders, highlighting the spread betting risks, benefits and hacks to influence great trading experiences.
Through our education series we aim to provide a warm welcome this fun, fast way to make a tax-free profit.
The risks of a leveraged product
What is first important to note is that spread betting is a leveraged product, allowing you to open positions with just a small deposit that is relative to your exposure in the market. While heightening your potential profit the format can also encourage losses that can exceed the initial deposit you wagered. However, there are many ways you can manage your risks, with each platform offering various tools to enter, track and exit bets with ease.
Professional traders will work with many orders at once, however, in a volatile market losses can rack up pretty quickly. This is why many new traders use Limit Orders, allowing them to automatically close trades and cash in on gains if the market moves in the way they expect. This style enables traders to reach their desired profits without getting lost in the moment.
One of our partners, City Index, provides the following analogy:
'Let’s say you've bought £2 per point of the UK 100 at 5000, and have highlighted 5200 as your profit target, a £400 gain (5200-5000 x £2). You can use a limit order to ensure that, should the UK 100 reach 5200, our systems automatically close out your trade at this level. Sure enough, the UK 100 rallies to 5200, and our systems automatically close your position out at 5200: our bid price. Next time you log onto the platform, you'll see your £400 profit already credited onto your cash balance.'
Stop loss orders are used to close a losing trade when the market meets a specific value; a value that is set by the trader. Allowing bettors to manage the risks of a loss, a Stop Loss cuts the possibility of a big defeat if the market does not head in the direction the trader predicted. However, Stop Losses are not inflatable and you will close your trade at the best available price once your pre-set stop value has been actioned.
If you believe you are ready to start spread betting then feel free to sign up with any of our providers today.
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