Spread Betting Risk Management: A Free Guide

LONDON, February 23, 2012 /PRNewswire/ --

Newcomers to spread betting  could learn more about risk management by downloading a new eBook from Capital Spreads.

Those who are new to spread betting may feel overwhelmed by the notion of building a portfolio from scratch. According to Capital Spreads, one of the most important things newcomers should be mindful of is good risk management and its 21-page free eBook, 'Capital thinking: Ways successful traders stay profitable and reduce risk', could be a very useful resource for beginners.

The eBook - which has been compiled purely as an information-only guide - suggests that by following a disciplined plan and adopting a sensible and measured strategy, newcomers can try to reduce the possibility of getting burnt by the markets.  

How much money do you start with?

Newcomers may feel bewildered about what sort of sum of money they should start spread betting with. Put simply, the less money a person has in their account, the harder it is to allocate risk effectively on one trade - so it can be harder to make a profit on a £1,000 account than a more flexible £5,000 balance. But of course, the more money you deposit into your trading account and the more you risk on each trade, the more you can potentially lose.

Those who do not want to trade more than £1,000 may be better off trading smaller amounts and looking to build up a portfolio over the longer-term. Experienced traders rarely risk more than 1-2% of their overall capital on any trade. So if you are trading with a £1,000 balance, a 1% risk could cost you £10.

Common mistakes when losing

A common error traders make when losing is to double up to catch up, which often leads to irrational decision making in the hope of recouping losses. Some traders adopt the Anti-Martingale strategy, which involves decreasing the size of one's position when losing and increasing it when winning.

Discipline in such a situation, as with spread betting in general, is key and new starters can hone their skill for restraint before risking their capital using the Capital Spreads Demo account.

Demos and downloads

In addition to the Capital Spreads demo account and the eBook, newcomers may also wish to download the Trading Plan and Trading Diary tools available in the Trading Tools section of the website. While having a good strategy in place is crucial, excellent discipline is also essential; no matter how good the trading plan, it will only be effective if you stick to it.   And even if you have an effective strategy in place, remember that this is no guarantee against losses.

Capital Spreads is a trading name of London Capital Group, which is authorised and regulated by the Financial Services Authority and a member of the London Stock Exchange. Registered Address: 2nd floor, 6 Devonshire Square, London, EC2M 4AB. Registered Number: 3218125.