Spread betting or margined trading has emerged as a very popular trading instrument amidst retail players. Given here are some tips you’ll do well to follow along with when you are going to get into this form of trading.
a) The spread amount on a specific stock would continually be more than the difference that exists between your bid and offer price on that stock.
b) If you wish to hold on to your portfolio from a long term perspective, don’t be doing any margined trading. This is because, each time you roll over a spread betting trade, the price increases and while there is no physical ownership of the stock, you would not obtain the normal benefits of dividends, bonuses or stock splits which are common with physical stocks. In today’s circumstances however, due to the fall in interest rates, it may be helpful to roll over stocks.
c) You have to be aware of the deposit margins charged. If that is very high on a specific stock then you would need to look to spread bet in stocks where this particular margin is a lot lower. This should help you use your funds better as the leverage is going to be similar.
d) Ensure you have sufficient back up by way of cash or property whenever you indulge in margined trading.
e) Be sure you always trade with strict stop losses and these have to be guaranteed so you are not napping when any abrupt negative movement in stock prices.
f) Begin with liquid stocks so that the volatility is one thing you can manage at the start. Small cap stocks with less liquidity have a lot of volatility that you’d have to deal with and that can result in sharp losses if the trade not come out as you anticipated.
g) Do not only search for the high visible companies for the margined trading. Some of the boring stocks can give you better returns and also you only need to keep an eye for suitable opportunities.
h) Do your trading within the same currency you used to open the spread betting account. That will take care of trade 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.
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