LONDON, January 26, 2011 /PRNewswire/ -- If you are spread betting (http://www.cityindex.co.uk/spread-betting/) on hunches alone, stop. Though our financial trading instincts are not always wrong, they are not always right either. Successful spread betting traders know precisely why they have opened a financial spread bet and - more importantly - the exact point at which they are willing to exit should the trade go against them.
You should have a spread betting strategy in place to determine your entry and exit points before you open a spread bet. A common mistake amongst spread betting beginners is to focus too much on their entry point and not at all on their exit. Your exit from a spread bet is every bit as crucial - if not more so - to your bottom line as your entry, and so it deserves as least as much attention.
Once you have opened a financial spread betting position based on considered market analysis (http://www.cityindex.co.uk/market-analysis/) - whether fundamental or technical - your money is at risk. For this reason, you should already have a stop loss in place. If we assume that the market subsequently moves to put your spread bet in profit, you have a number of options to consider.
Some traders would keep their stop loss fixed at the lowest low in order to give the market room to fluctuate. More conservative traders might immediately move their stop loss to trail the market or lock in a profit or breakeven result. The flaw of this method is you can sometimes see your spread bet fall and trigger your stop loss, only for the market to then move back where it was.
The phrase "cut your losses, let your profits run" is a fine mantra, but how do you apply it when it comes to actually exiting a spread bet?
One method is to set a price target based on a risk-reward ratio. For example, if we imagine you to hold a spread betting position with a 50 point risk, you might use a strategy that targets a 3:1 profit on every spread bet. This would mean that, for every 1 that you risk, you would aim to receive 3 back. Applied to the above scenario, your 50 point risk would see you target a profit of 150 points for the spread bet.
Naturally, you do not know if you will reach your target profit, but you stand a better chance of surviving in the spread betting markets by operating a disciplined, sensible strategy. Remember, financial spread betting is risky, difficult and unpredictable - if it was easy, everybody would be doing it.
Sharpen your spread betting with a free City Index seminar at http://www.cityindex.co.uk/learn-to-trade/seminars.aspx.
Learn more about City Index's online and mobile trading platforms at http://www.cityindex.co.uk/trading-platform/.
About City Index:
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, contracts for differences (CFDs) and, in the UK, spread betting.
We constantly look to widen the range of assets we offer, improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support.
Spread betting and CFD trading (http://www.cityindex.co.uk/cfd-trading/) are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
SOURCE City Index