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Money-Management Articles >> 5 Tips To Make More Money With Financial Spread Betting
By Alex Green Financial spread
betting is a tax-free way to play and invest in the markets (all profits
are 100% tax-free). One of it’s main attractions especially for new
traders is that all global markets can be traded with very small amounts
of money, so making spread betting a great tool for learning about the
markets. Here are 5 tips that will help you make more money.
1. Watch Those Dealing Costs
Spread bet brokers charge no commissions but there are costs involved.
They will always quote a wider bid-offer spread than on traditional
markets. For example, on Gold futures the bid offer will normally be $0.10
or $569 bid and £569.10 offered. But the spread bet broker will normally
quote around $0.50 or $568.80 at £569.30.
These extra costs can have a dramatic effect on profitability over time
especially if the trader likes to do a lot of short term trades. Discount
costs at your own peril because what happens to many short term traders is
they make money gross but lose it net when costs are taken into account.
One way to combat this is to cut back on the amount of trades you do by
cherry picking the higher probability ones.
2. Use Charts But Keep Your Analysis Simple
Whether you agree with charting and technical analysis is not so important
because over 80% of the market does. So if you know the majority of market
participants are looking at charts you should keep an eye on them, know
how your enemy is thinking so to speak!
Things to look out for are when major chart levels are breached such as
the 50 or 200 day moving average as well as price breakouts from important
highs or lows.
But the best traders tend to try and keep their charting simple. Anyone
who has access to a £300 personal computer can now number crunch with 1001
different indicators. The use of all these indicators has been massively
diluted over the years. Instead, try and focus on the shape and character
of the chart, does it look bullish/bearish etc and are there any major
levels of support or resistance coming up. If so, watching how the market
reacts and trades around these levels can give great clues as to the
future direction.
3. Don’t Be Afraid To Use Spread Bets For Holding Long Term Positions
Today, everyone seems to be obsessed with trying to trade every move in
the market. But with spread betting because of the higher costs involved
in short term trading it’s often a better tactic to focus on trading
longer term moves.
Concentrating on the longer term moves can have a three-fold benefit.
Firstly, the costs become somewhat irrelevant, secondly it’s often less
hard to latch on to longer term moves and trends than catch all the short
term ups and downs. And thirdly, you don’t have to waste time following
the market all the time. The author for example once held a Gold position
using spread bets for over a year.
4. Use Dummy Accounts When First Starting Out
Most if not all of the spread bet firms will offer ‘dummy’ accounts for
new clients just starting out. Practice accounts are excellent training
tools to not only introduce people to spread betting but also how to trade
all the different markets as well as how to correctly place orders.
Then after a month or so deposit a small amount of money in an account and
trade very small positions. As you begin to gain more confidence in your
own abilities, strengths and weaknesses add more money to the account over
time. A lot of money has been lost by new clients depositing large sums of
money and then blowing large portions of it because they didn’t fully
understand the game.
Be smart, look longer term and ease yourself and your trading capital into
the markets.
5. Don’t Trade What You Don’t Know Or Fully Understand
You may understand the stockmarket and how to make money but this doesn’t
mean you’ll be able to carry this knowledge and understanding to different
markets with altogether different characteristics.
Commodities especially those grown in the ground are a classic example of
this. Weather, drought, shortages and other fundamental reasons can
drastically alter the price of the markets sometimes within a few minutes
or perhaps with the market opening 10% higher or lower the following day.
So if you want to trade these types of markets do a little bit of research
into what can move them as well as studying historical charts to see just
how the price can move if things get hairy.
A good rule for all of these commodities is that when they enter what’s
called a ‘weather market’ or the time of the year when excess rain, sun or
frost can seriously effect the crop automatically decrease the size of
your trading positions.
Summary
Trading is as much about skill as experience, in fact they most probably
feed off each other. This is why it’s so important to approach the goal of
making money in the spread betting world from a position of knowledge and
strength. Hopefully this article has given you some tips to go forward and
increase the value of your trading account.
This article was added on: April 16, 2006.
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