Spread betting or margined trading has emerged as a very popular trading instrument amongst retail players. Given below are some tips you will do well to follow when you are about to get into this form of trading.
a) The spread amount on a specific stock would always be more than the difference that exists between the bid and offer price on that stock.
b) If you wish to hold on to your portfolio from a long term perspective, then you should not be doing any margined trading. That is because, each time you roll over a spread betting trade, the cost increases and since there is no physical ownership of the stock, you would not get the normal benefits of dividends, bonuses or stock splits that are common with physical stocks. In today's circumstances however, due to the fall in interest rates, it may be useful to roll over stocks.
c) You need to be aware of the deposit margins being charged. If that is very high on a particular stock then you would have to look to spread bet in stocks where this margin is much lower. This will help you use your funds more effectively as the leverage is going to be similar.
d) Ensure you have enough back up by way of cash or property when you indulge in margined trading.
e) Make sure you always trade with strict stop losses and these have to be guaranteed so that you are not napping from any abrupt negative movement in stock prices.
f) Start out with liquid stocks so that the volatility is something you can manage at the beginning. Small cap stocks with less liquidity have a lot of volatility that you would have to contend with and that can lead to sharp losses should the trade not turn out as you anticipated.
g) Do not only look for the high visible companies for your margined trading. Some of the boring stocks can give you better returns and you only need to keep an eye for suitable opportunities.
h) Do your trading in the same currency you used to open the spread betting account. That will take care of exchange related risks.
i) Be aware that stock prices always drop faster than they go up since any fall results in panic selling.
The above tips though not exhaustive should help you in your spread betting activity.
Learn how important Guaranteed Stop Loss orders are when Financial spread betting by visiting independentinvestor.co.uk.
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