The key to more consistent wins in spread betting lies within the challenge of working out which companies are under and overvalued and betting accordingly. The danger comes with the fact that it allows punters to wager much more than the cash they pay up front, and it is not always obvious how much money they could stand to lose. This principle opens the door to tremendous gains but also immense losses due to the volatility of stocks.
What is Spread Betting?
Spread betting is a form of betting that allows you to take a position on whether you think a market will rise or fall, without actually buying the underlying asset. Importantly, spread betting is a leveraged product. This means you only have to put down a small deposit for a much larger market exposure.
Betting using leverage means there are significant benefits and risks, allowing you to win many times the initial stake. However you can also lose more than you initially deposit. For example, assume that a spread-betting company quotes a bid of £200 and an offer of £203 for a certain stock. If you believed that the price for that stock will go below £200, you could then bet an amount of money, for example £2, for every pound that the stock falls below £200. Therefore, if the stock price after a week came to £190 you would receive a £20 return from your bet. However if the price was £215 after the week you would end up losing £30.
How to Win
One thing that is absolutely paramount to successful spread betting is to take it slow at the start. Needless money is lost by people new to spread betting as they don’t properly understand what they’re doing. It is imperative that you take time to familiarise yourself with the ins and outs of spread betting before wagering larger sums of money. It’s far better to watch the market, get some sort of strategy in place and look for the trades where the risk is small and the potential profit is large. This may mean doing nothing for a few days or even a week or two but that’s often a sign of a good trader. Risking your money on any and everything you can bet on is a terrible strategy. Taking your time, making researched and calculated decisions is the only way to make your wins bigger and your losses smaller.
When starting out it is important to remember that betting on the value of stocks to go down is just as profitable as betting that stocks will go up. The value of a stock falling is often easier to predict than it rising and spotting this early gives you a great chance to make more successful bets.
Research is key to successful spread betting. Having a solid knowledge of the market along with understanding the companies you’re betting on is a good place to start. Most of your research can be done on the Internet and by speaking to people in the know. Reading the newspapers, studying each company, arming yourself with a good instinct and nurturing an appetite for risk will also increase your chances of doing well.
All markets are always unpredictable. Drastic changes in the value of a stock can happen overnight, making it difficult to accurately predict whether it will rise or fall with a strong degree of certainty. However some stocks are naturally less prone to large fluctuations in value. These yield much less potential for big winnings in exchange for a safer bet and are a good place to start, slowly moving onto high risk/reward stocks.
So can anyone be a profitable better simply if they work hard enough and study the stocks? In theory, yes. You need to have courage in your convictions and stick out positions over the long term. Many get unnerved by initial losses and lack the tenacity to keep trying, or they continue to make the same mistakes. Spread betting attracts the kind of people who are used to and enjoy taking risks, but are also calm, calculated and patient. No book, course or experienced investor can teach someone everything they need to be an expert in spread betting, you have to learn on the job, keep alert and work hard.