If the bet is correct, spread betting can generate high profits. Most spread betting traders can only succeed after years of experience in formulating a systematic trading plan. Only a small part succeeded and most failed. We focus on the important factors for the success and profitability of spread betting.
Note: Although it is very popular in Europe, especially the United Kingdom, spread betting is illegal in the United States.The U.S. Commodity Futures Trading Commission prohibits the sale of foreign securities and futures products to U.S. retail investors
Securities with smaller trading spreads
Suppose that the trading price of a stock is 300 pence. However, due to its lack of liquidity, the bid-ask spread is very large, ranging from 290-310 pence. Due to the large spread, even if the stock rises by 3.33% to 310 pence, the buyer will not make a profit if he pays 310 pence for the position.
Now adopt similarly priced but highly liquid stocks. Its spread is even smaller, at 298-302 pence. Buyers who pay 302 pence for the position will make a profit after the smaller move. Betting on tools with smaller spreads can significantly increase profit potential.
Establish a structured transaction plan
How much is the total trading funds available? How much money will be used for each spread bet? How long will spread bets be placed? The answers to such questions help to develop an effective trading plan.
Your first bet of £50,000 and £25,000 will cost you a huge loss. With the remaining £25,000, you need to make 100% of the profit to make up for your loss. When a person enters with a clearly defined spread betting plan, the profitability of spread betting can be greatly improved, which is based on the total capital, the bet amount of each consecutive bet, and the betting frequency.
Build entry and exit
In the long run, correctly structured bets can make a person profit, even if your number of losing trades exceeds your profitable trades. Take Ami as an example. On average, he wins 4 out of every 5 bets, while Ben only wins 1 out of every 5 bets. Whose deal is more profitable?
On the surface, the answer seems to be Ami, but it depends on the size of the bet and the risk-reward situation.
- Ami wins 4 out of 5 bets, with a success rate of 80%. She makes a net profit of 10 pounds every time she wins a bet, but gives up 50 pounds every time she loses. Ami effectively lost (80% x 10 pounds) – (20% x 50 pounds) = 2 pounds.
- Ben wins 1 for every 5 bets, with a success rate of 20%. He makes a net profit of 50 pounds for every bet he wins, and loses 10 pounds for every bet he loses. This effectively earned a profit of (20% x 50 pounds) – (80% x 10 pounds) = 2 pounds.
Considering the risks and potential rewards, the key is to place bets on the right scale. If the transaction structure is reasonable, losing multiple small bets for a big win can be rewarded.
The right market and the right tool choice
A spread betting company headquartered in the UK, such as City index Provide spread betting across 45 global markets, with asset classes including stocks, indices, foreign exchange, commodities, metals, bonds, options, interest rates and industries.
Most novices often play in multiple markets and securities at the same time without a clear understanding. People should accumulate expertise in some asset classes. Attempting to generalize will result in increasing losses.
Preparation, planning and practice before admission
Most spread betting companies provide free practice demo accounts. Learn trading skills, back-test structured betting plans, and practice many times before investing real money. The market will always exist, but the real money lost in the initial stages of ignorant and inexperienced attempts will be difficult to recover.
Once you are satisfied with the virtual return, enter with real money. Start small, and then expand as gaming profits increase.
Controlled use of leverage
Spread betting can use leverage, although capital is limited, but it can still magnify profit (and loss) exposure. For 100 pounds, a 10% leverage margin allows one person to bet up to 1,000 pounds. Leverage is a double-edged sword. When the bet is successful, it magnifies the profit, but if there is an error, it also magnifies the loss.
Successful spread traders use leverage effectively through strict control, while novices can easily hold a large number of positions and eventually lead to account failure. Controlling the use of leverage based on the actual availability of capital is a necessary condition for the success of spread betting.
Factors of tax incentives
When developing a trading plan or comparing the performance of different trading activities, it is important to consider the tax benefits available in spread betting. This is a very important factor for real profit.
Although spread betting is illegal in the United States, it is very popular in the United Kingdom and European countries. It offers the potential for high profits, but most traders are inexperienced at the beginning. Accumulating sufficient knowledge, choosing the right tools, and practicing and backtesting the trading system can help profit from spread betting.