04/02/2011 – Reducing Your Risk With Spread Betting
February 4, 2011 8:49 pm
The concept made its name in the 70’s when a city trader Stewart Wheeler created an index to trade on gold. His brain child, Investor Gold Index became the first modern day spread betting firm in the world now better known as IG Index.
Is Spread Betting Risky?
Like any betting, it can be risky as you can always lose a bet, but on the flip side you can also make back at lot more than your initial investment. Spread betting is no more risky than going to Vegas and placing your months wages on red at the roulette table.
Spread betting can become risky if you begin to use the leverage of your deposit. Meaning that if you place a bet for $10USD you can leverage this bet and effectively be betting with $100USD even though you don’t have this amount in your account. This is where the danger for newbie spread bettors comes in, as leverage will allow you to bet with money you don’t have.
How to reduce your risk
1) Stop Loss and Guaranteed Stops
This is the main method this to reduce risk and is where most people fall foul. The reason you should always place stop loss on bets is that if the bet you have placed begins to go in the wrong direction of what you placed the bet then the spread betting firm will close your position and buy back your position so you don’t continue to lose money.
2) Don’t use leverage
You should only gamble with money that you are willing to lose, if you have to use leverage that generally means that you don’t have this money to gamble with in the first place. Just because leverage is available doesn’t mean you should use it.
3) Understand the markets you are placing bets on
Not all stock markets are equal — different markets carry different risks, fully understand the market you are betting on before placing an order as markets can move in unpredictable ways, very fast and sometimes increasing your potential for loss.
4) Read the small print
Each provider has their own rules, read and understand what you might be liable for if the bet you placed goes in the wrong direction. The FSA do a good job of regulating but it up to use to read the terms and conditions.
The concept made its name in the 70’s when a city trader Stewart Wheeler created an index to trade on gold. His brain child, Investor Gold Index became the first modern day spread betting firm in the world now better known as IG Index.
Is Spread Betting Risky?
Like any betting, it can be risky as you can always lose a bet, but on the flip side you can also make back at lot more than your initial investment. Spread betting is no more risky than going to Vegas and placing your months wages on red at the roulette table.
Spread betting can become risky if you begin to use the leverage of your deposit. Meaning that if you place a bet for $10USD you can leverage this bet and effectively be betting with $100USD even though you don’t have this amount in your account. This is where the danger for newbie spread bettors comes in, as leverage will allow you to bet with money you don’t have.
How to reduce your risk
1) Stop Loss and Guaranteed Stops
This is the main method this to reduce risk and is where most people fall foul. The reason you should always place stop loss on bets is that if the bet you have placed begins to go in the wrong direction of what you placed the bet then the spread betting firm will close your position and buy back your position so you don’t continue to lose money.
2) Don’t use leverage
You should only gamble with money that you are willing to lose, if you have to use leverage that generally means that you don’t have this money to gamble with in the first place. Just because leverage is available doesn’t mean you should use it.
3) Understand the markets you are placing bets on
Not all stock markets are equal — different markets carry different risks, fully understand the market you are betting on before placing an order as markets can move in unpredictable ways, very fast and sometimes increasing your potential for loss.
4) Read the small print
Each provider has their own rules, read and understand what you might be liable for if the bet you placed goes in the wrong direction. The FSA do a good job of regulating but it up to use to read the terms and conditions.
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