Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Spread betting tips

Spread betting​ is a leveraged trading method that can be used to trade markets around the world. Suitable for both beginner and professional traders, this article covers tips that can help improve your spread betting success and strategies that can be used when spread betting.

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List of spread betting tips

  • Know the risks and rewards of spread betting. The risks and advantages of spread betting make it the most popular leveraged trading product in the U.K. Therefore, learning about the tax efficiency of spread betting and other advantages can help realise its full potential.
  • Build a trading plan. Trading without a plan is like driving without knowing what direction you are going. A trading plan can be used to help to keep trades consistent, disciplined and reduces the likelihood of unplanned trades. For more information, visit our article on creating a trading plan when spread betting.
  • Practise risk management. Use of risk management conditions such as stop-loss and take-profit orders can help manage your exposure to risk. Risk management conditions paired with a sound trading plan provide a good basis for the improvement of any trader’s strategy.
  • Focus on one market. Although trading multiple markets yields many more trading opportunities, beginners are best to focus their energy on one market. Markets are complicated and trying to learn too many asset classes at once could cause you to lose focus and potentially make mistakes.
  • Have discipline. Improving discipline is one of the most important tips for all levels of spread betting traders. Traders need to actively work on how disciplined they are when opening and closing trades, as trading based on emotions is often a traders biggest downfall.
  • Adopt a professional trader’s psychology. Most advanced traders will follow a consistent, replicable strategy. Therefore, they can easily measure results and better manage inconsistent variables such as fear and worry.
  • Practise on a demo account. Open a demo account to trade with £10,000 of virtual funds in a risk-free environment. This way, you can perfect your trading strategies and monitor your success before staking any real funds.

Spread betting strategies

Several strategies can be used alongside the above tips in an attempt to increase the likelihood of trading success. However, it is worth noting that this is not a complete list of all spread betting strategies, and only provides the most common ones. Visit our trading strategies​ article for more information on strategies that can be used when spread betting.

Many traders eventually customise the trading strategy they use or merge it with another to help it work with their trading style. Some of the common trading strategies used when spread betting include:

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Trend following strategy

When spread betting a trending market, traders use technical analysis to define a trend and only enter trades that follow the direction of the trend. Trend following​ is a medium-term strategy and success in trend trading is often dictated by an accurate system to follow and follow trends. Trend following is suited for beginner traders to advanced traders as it is relatively simple to understand but can take some practise to master.

Trend traders take a predominantly technical view of the markets and open and close trades based on charts and technical indicators. To establish a trend’s direction traders use moving average indicators and place their own trend lines. To identify when to open and close spread bet positions traders use indicators such as the moving average convergence divergence (MACD) and the relative strength index (RSI).

Trend traders have the option to place spread bets whatever direction the market is heading. However, they need to stay alert as a trend can quickly change, due to market reversal and other factors.

News strategy

A news trading strategy can also be a good strategy for beginner spread betters. Although it can be very difficult to master, the concept of news trading is relatively simple and can be practised as a hobby. News traders enter and exit markets based on news releases and place spread bets both before and after releases. Therefore, news traders need to quickly assess the market’s reaction to the news and make quick decisions on what direction they think the market will head following the news release.

News trading is predominantly a spread betting strategy based on fundamental analysis, so a solid understanding of global markets is important. Additionally, success is determined by traders understanding news from the market’s perspective and not being influenced by their bias and opinions.

Using spread betting as a hedging tool

Traders often use spread betting as a hedging tool. Spread betting is a tax-efficient method of trading that traders can use to hedge positions in their wider portfolios. Say, for example, an investor owns 1,000 shares in Apple and is investing for the long-term. However, their long-term position generates risks if Apple enters a downward trend, even over the short-term.

Apple is soon to release an earnings report, and the investor believes that Apple has been underperforming, which could impact its share price. In the lead up to Apple disclosing their results, the investor opens a position to ‘sell’ the value of 1,000 shares in a spread betting trade.

If the trade is set up correctly, and Apple’s share price falls, any losses on his shareholdings should be countered by the gains of the spread bet. However, any appreciation in share price would also be neutralised by the losses of the spread bet. Therefore, using spread betting as a hedging tool can be useful if you believe the market to take the opposite direction to your existing market exposure.

The strategy can reduce the market risk of holding a share to zero when executed correctly. However, there are other risks of spread betting and costs that investors must consider when using spread betting as a hedging tool.

Summary

Spread betting is an effective trading technique for traders that reside in the U.K. or Ireland. It is the most tax-efficient* method of trading that we offer, and by following our spread betting tips and strategies and understanding the risks involved, you can begin to start placing spread bets.

FAQS

Can spread betting be profitable?

Spread betting can result in profits if the trade is successful. Using leverage to increase your exposure to the financial markets means your profits and losses are magnified against the full value of your position, depending on if the market moves in your favour or in the opposite direction. Open a spread betting demo account now to practise trading.

How is a spread calculated?

In spread betting, the spread is calculated as the difference between the buy (bid) and sell (ask) prices that are quoted for an instrument. The bid-ask spread can fluctuate depending on the volatility and liquidity in the market. Browse our markets page to view live prices and spreads.

What is the best strategy for spread betting?

There is a wide range of trading strategies that you can use when spread betting, and these differ for each market and instrument. Therefore, you will need to find a strategy that suits your trading personality, style and the market that you’re investing in. Read our list of the top short-term trading strategies.

Is spread betting suitable for beginners?

Spread betting is suitable for both beginners and experienced traders, but it is important to understand the risks before you start trading. When learning the basics, you can use our spread betting for beginners guide. Once you have devised a trading plan, deposited funds into your account and are familiar with appropriate risk-management tools, you can register for a spread betting live account.

Is spread betting safe?

Spread betting requires clients to trade using leverage, which increases your exposure to the markets. While this can increase the opportunity for profit if your trade moves in your chosen direction, if the markets move against you, your losses will be magnified based on the full trade value. This could wipe out all the capital in your account, though negative balance protection means that you can’t lose more than your account value. It is important you understand the risks before you start spread betting and ensure  you take precautionary measures, such as adding risk-management tools like guaranteed stop-loss orders. Read about how to place stop-loss orders on your positions.

* Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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