Financial spread betting has quickly become one of the most popular ways to speculate on the movements of stock indexes, foreign exchange currencies or commodities markets. But how do you do it? If you’re wondering how to become a trader, read on for our step-by-step guide.
Step 1: Open an account
Before you can place any bets, it is necessary that you open an account with a spread betting company such as Capital Spreads. You should then familiarise yourself with any of the instructional materials provided here, as there may well be some subtle differences in the way that each company’s platform operates.
Step 2: Choose a market and research it thoroughly
Spread betting offers you the opportunity to place bets on a wide variety of indexes all from within the same account, but if you are new to the process, you should stick to one market – for example, the FTSE 100.
It is necessary to conduct as much research as you possibly can, as this will provide you with the best possible opportunity to secure the greatest returns. Although there is a risk involved in all forms of investment, by conducting thorough research, you can help to minimise this and maximise your returns.
When researching stocks on an index such as the FTSE, look out for any events that will impact upon the share price. Quarterly earnings reports are one of the key examples, as they are likely to send the stock higher if they come in above-forecast, while a disappointing result can usually be expected to have the opposite effect.
It is also worthwhile to research the peers of the companies you are planning to place bets on. While this can be a time-consuming process, you will often reap the rewards as trends can often span the entire sector.
Step 3: Come up with a strategy
Decide how much you are going to bet and the profit level at which you are going to close the trade. It is important that you stick to this, as the majority of losses come when people place bets haphazardly and without proper consideration.
Unless additional information comes to light, there is no reason why you should alter your strategy once you have placed a bet. It doesn’t matter how confident – or bullish – you feel about the position you have taken, you should not place any more bets than you originally planned to.
Step 4: Make some demo trades
Most spread betting providers will allow you to make demo trades using theoretical funds. Here you can get to grips with the layout of the platform and how it works and it is recommended that you keep a track of the trades you make here in a logbook or spreadsheet – as you should with your eventual real trades.
However, it is important not to get carried away with a demo account. It is common for people to be fooled into thinking they can recreate any profits made with fictional money, only to find the process works out very differently when their cash is on the line.
Making sure that you implement your strategy strictly will help to remove this emotional element.
Step 5: Place a bet
Once you’ve utilised the demo facility and are comfortable, it is time to make a real trade.
You should start with a small stake, follow your plan fully and close the trade at the pre-determined profit level. It is also important to use stop losses to limit the amount you will be liable for if the worst happens and the trade does not go the way you have planned.
Once you’ve placed a bet, you should watch the market closely to make sure you emerge from it at the best possible time and with your desired profit.
After a while, you will be able to move onto longer-term trades and other instruments, such as commodities or forex.