Spread betting: avoid these common mistakes

Angus Campbell of trading platform Capital Spreads runs through the most fundamental mistakes that investors commonly make. 

I regularly get asked 'how do I make money trading the markets?' Spread betting is just one way you can get access to thousands of global markets from one account, with the main benefit being that any capital gains are completely tax free (although this is a UK law that’s subject to change). Our seminars attract lots of investors who are eager to profit from movements in financial markets. 

The bottom line is that there is no easy way to make money from trading the markets and this is the first common mistake that attendees to our seminars make.  They have unrealistic aspirations and believe that all they have to do is place a few £10 bets and they’ll spend the rest of their lives trading via a laptop from a beach in the sun.  So the first thing to appreciate is that trading is tough and you’re not going to become an expert overnight.

When you start trading you need to be sure that you trade a market that suits you.  All too often people will jump in at the deep end trading a very volatile market to start off with or a market that they simply don’t understand.  Research and discipline are key to starting out and quickly you’ll know which market suits you.  The most popular market amongst our clients is the FTSE 100 index which is understandable since we are a UK based firm and the majority of our clients are UK based, so it’s possible to some research and find out good information on the market.

The most common mistake though is that on the whole investors run their losses.  This means that when a position is still open but currently a losing one, the person might continue to let the losses build as the market moves further and further against them in the hope that it will eventually come back into profit.  This is a strategy that losing investors employ as it’s in human nature not to want to incur a loss.  Often investors are all too happy to run a hefty loss and take a small profit if the position comes back in their favour.  Ensuring that losses are limited and profit targets are at least greater than the risk an investor is willing to take is the first step in ensuring not to fall into the loss running trap. 

Read Angus Campbell's five golden rules for spread betting here.