Five mistakes to avoid when spread betting

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Spread betting can be risky. Make sure you avoid the pitfalls.

1. Not having a plan – It’s easy to get drawn into placing bets all over the place, some of which may over-lap, or contradict. Have a plan: identify those assets where you may have some insight and target those. For example, if you know about the oil price, bet on movements in the oil price, before branching out into other commodities. There is plenty of educational material to help you.

2. Not managing risk – Spread-betting can be a quick way to lose a lot of money. You need to decide how much money you can reasonably afford to lose and cut your losses if you hit that level. Most spread-betting sites offer the facility to put in place stop-losses, which will close out a trade automatically if losses get too large.

3. Being over-confident – Don’t think you know it all. Markets are full of very clever people, who know a lot about their subject, who get it wrong all the time. It is worth being humble to the market, recognising that you may make mistakes occasionally.

4. Not practicing first – All spread-betting sites will allow you to set up a virtual portfolio before you start real trading. This can help you decide on your strategies, understand your strengths and weaknesses, and build knowledge on your chosen markets.

5. Going in big – Start small and build. Don’t start with huge bets – winning will make you over-confident and losing will make you lose heart. Spread-betting isn’t going to make you an instant millionaire, but if you practice and develop your investment strategies, it may be worth it.

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